2 0 0 9 A N N U A L R E P O R T
SM
and strengthening
our communities.
at December 31
2009
2008
2007
Table of Contents
Financial Highlights
(Dollars in millions, except branch office data and per share data)
Letter from the Chairman
& the Chief Executive Officer . . . . . . . . . . . . . . . . . i
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . ii
Form 10-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Total assets
Net loans, including
held for sale
Principal Officers
& Advisory Board Members . . . . . . Inside Back Cover
Mortgage-backed securities
and other investments
Deposits
Borrowings
Stockholders’ equity
Number of branch offices
for the year ended December 31
$3,749
$3,433
$3,200
2,479
766
2,562
855
302
37
2,444
587
2,122
1,067
217
35
2,234
571
1,827
1,135
211
29
Net income
$ 663
$16,136
$29,649
Net (loss) income allocable
to common stockholders
(1,927)
16,136
Diluted earnings per common share
(0.30)
Return on average equity
Return on average assets
Nonperforming assets
to total assets
0.24%
0.02
2.19
2.57
7.30%
0.50
1.04
29,649
4.55
14.34%
0.98
0.99
Mission
We Stand For Service® and strengthening
our communities.
Vision
We envision a day when all our constituents
say, “I can’t imagine a world without WSFS.”
Strategy
Engaged Associates delivering Stellar Service
to create Customer AdvocatesSM, resulting in
a high performing, very profitable company.
Values
• Committed to always doing the right thing
• Empowered to serve our Customers
and communities
• Dedicated to openness and candor
• Driven to grow and improve
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 of $663,000 and a loss of $0.30 per
common share (after preferred stock dividends) in 2009, compared
to $16.1 million, or $2.57 per diluted common share in 2008. For
2009 our return on equity was 0.24% and our return on assets was
0.02%, compared to 7.30% and 0.50%, respectively, for 2008.
While we had breakeven income for the year, we made significant
progress building our franchise value by continuing to serve our
communities during difficult times and by taking advantage of
opportunities in our marketplace. This progress included strong
market share growth and increased levels of customer funding,
enhanced margin while maintaining our focus on lending with
prudent underwriting and continued expense control.
Also in 2009, we took significant and aggressive action to manage
our problem loans including adding resources and talent to our
loan management team. We are pleased with some initial results,
especially in the fourth quarter of 2009, in which nonperforming
assets decreased 12%. In addition, we saw improvements in total
portfolio delinquencies in the same fourth quarter and we will
continue to actively manage our portfolios throughout the year.
WSFS is in excess of “well-capitalized” regulatory benchmarks and
remains focused on building the appropriate level of loss reserves
and capital to continue to support our communities, take advantage
of opportunities and provide support against the threat of continued
economic deterioration. The private placement of $25 million of
common stock to Peninsula Investment Partners, L.P., in September
2009 provided WSFS these benefits and reintroduced Mr. Ted
Weschler as a valuable addition to the Board.
As a continuation of the Company’s long-term succession plan,
Marvin N. “Skip” Schoenhals assumed the role of non-executive
Chairman, as he retired from full-time employment at WSFS Bank
after 19 years of leading the WSFS organization to new heights
and significantly increasing shareholder value during his tenure.
Mr. Schoenhals will continue to function in a consultative role and
engage in community relations and business development activities
for the Bank, in addition to his responsibilities as Chairman.
This recession has given us a chance to prove our business model,
Engaged Associates delivering Stellar Service to create Customer
Advocatessm. Even during the challenges of the past year, we
realized great results and increased our market share. We are proud
that more Customers have come to WSFS because of our reliability
and Stellar Service.
Total Customer
Deposits ($MM)
6
4
1
2
,
7
0
7
1
,
9
7
4
1
,
4
4
3
1
,
4
9
1
1
,
2
5
0
1
,
Highlights of 2009 include:
• Customer deposit growth continued
at a robust pace and brought total
growth for 2009 to $438.9 million
or 26%, from year-end 2008, far
outpacing our historical growth rate
and peers’ results.
• WSFS gained market
share in
lending, growing the
commercial
commercial
loan portfolio $122
million, or 7%, over 2008, while
others stayed flat or decreased their
loans outstanding. We also improved
our margin significantly as a result
of improved pricing on loans and
thoughtful management of our
deposit rates and other funding costs.
D e l a ware
2 0 0 9
2 0 0 9
09 08 07 06 05 04
• In 2009, for the third year in
a row, WSFS was named by
The News Journal as a Top 5 “Best in the Business.” Even
more significant in 2009, this independent survey ranked
WSFS as #1 in the list of outstanding large companies.
• Independent survey results of our Customers continue to score
WSFS as “world class” in service and engagement, firmly in the
top ten percent of all companies surveyed by Gallup, Inc. WSFS
achieved the highest Customer engagement scores in 2009, and
Associate engagement levels are 12 times the national average
for workplaces. And just recently, WSFS’ engagement journey was
i
W S F S 2 0 0 9 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
featured in the Gallup Management Journal for a global audience.
We take great pride having our story told and thank our
Associates for believing in our mission, living our values and
delivering on our strategy every day for every Customer.
• WSFS expanded its footprint in Sussex County with the addition
of two branches in Millsboro and Ocean View, Delaware. Both of
these locations feature a new branch design that improves service
and efficiencies while utilizing our Universal Associate model.
WSFS also relocated two branches in Dover and Lewes to new
facilities in order to better serve our Customers in those regions
and renovated one of our busiest branches in Prices Corner.
• Our Trust & Wealth Management Division gained significant
momentum during the year with new talent and new business. In
addition, niche businesses continue to be a strategic focus for
WSFS. Our reverse mortgage business remained #1 based on loan
originations in Delaware every month in 2009. Cash Connect, the
nation’s second-largest ATM servicer, achieved a record in 2009
in terms of customers served, volumes delivered and profit.
• S. James Mazarakis officially joined the executive management
team on February 1, 2010, as Chief Technology Officer leading
the Operations and Technology Division. Mr. Mazarakis served as
interim CTO since May 2009 and came to WSFS with nearly 30
years of extensive experience in banking, investment management
and brokerage services.
At the end of 2009, we finalized our 2010–2012 3-Year Strategic
Plan, affirming our commitment to high performance, Human
Sigma®, and talent and leadership development. We also broadened
our mission statement, We Stand for Service® and strengthening
our communities, to tie our commitment to Stellar Service to all the
communities we serve. Our mission, vision, strategy and values will
guide us as we strengthen and grow our franchise, pursue
opportunities outside our traditional banking model and build a
stronger infrastructure as we continue to closely manage risk.
We continue to build on our successes with our team of dedicated
Associates committed to delivering Stellar Service and doing its
best every day. We remain optimistic about the future of WSFS and
will continue to deliver value to our shareholders and our community.
Thank you for your ongoing trust in WSFS Bank.
MARVIN N. SCHOENHALS
Chairman
MARK A. TURNER
President and Chief Executive Officer
Board of Directors, WSFS Financial Corporation
We are indebted to Ms. Linda
Drake and Mr. David Hollowell
for their dedicated service to
the WSFS Board of Directors.
Both will be retiring from the
Board in April 2010. We sincerely
thank them for their guidance
and contributions which have
been invaluable to our success
over the years.
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
Bayhealth, Inc.
Thomas P. Preston, Esq.
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.
Vice President (Retired)
E. I. du Pont de Nemours and
Company, Incorporated
Mark A. Turner
President and
Chief Executive Officer
WSFS Financial Corporation
R. Ted Weschler
Managing Partner
Peninsula Capital Advisors, L.P.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 2009
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
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or other Jurisdiction of
Incorporation or Organization)
22-2866913
(I.R.S. Employer Identification No.)
500 Delaware Avenue, Wilmington, Delaware
(Address of Principal Executive Offices)
19801
(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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes ___ 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, 2009 was $162,750,000. 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 11, 2010, there were issued and outstanding 7,084,903 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 29, 2010 are incorporated by reference in Part
III hereof.
WSFS FINANCIAL CORPORATION
TABLE OF CONTENTS
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
[Reserved]
Part I
Part II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9
Item 9A.
Item 9B.
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
Quantitative and Qualitative Disclosure about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services
Item 15.
Exhibits, Financial Statement Schedules
Signatures
Part IV
Page
3
26
32
33
36
36
36
38
39
59
61
109
109
112
112
112
112
113
113
113
116
-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 Wilmington Savings Fund Society, FSB (“WSFS Bank” or
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 177 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. We state our mission simply: We Stand for Service and
Strengthening Our Communities.
WSFS’ core banking business is commercial lending funded by customer-generated deposits. We have
built a $1.9 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 41 banking offices located in Delaware, southeastern Pennsylvania and Virginia. We also offer a broad
variety of consumer loan products, retail securities and insurance brokerage through our retail branches. In
2009, WSFS was the number one reverse mortgage originator in Delaware.
In 2005, we established our WSFS Trust and Wealth Management division (WSFS Trust). WSFS
Trust was formed in response to our commercial customers’ demand for the same high level service in their
investment relationships that they enjoy 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 for WSFS Trust. This division is complemented by Cypress Capital Management, a Registered
Investment Advisor, acquired by WSFS in 2004.
Our Cash Connect division is a premier provider of ATM Vault Cash and related services in the
United States. Cash Connect manages more than $308 million in vault cash in more than 10,000 ATMs
nationwide and also provides online reporting and ATM cash management, predictive cash ordering, armored
-3-
carrier management, ATM processing and equipment sales. Cash Connect also operates over 360 ATMs for
WSFS Bank, which owns the largest branded ATM network in Delaware.
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 including WSFS have been able
to distinguish themselves from large national or international banks that fail to provide their customers with the
service levels they want as reorganizations, government rescues and other big-bank problems distract their
emphasis on the customer, especially in the current environment. The following factors summarize what we
believe are those points of differentiation.
Building Associate Engagement and Customer Advocacy
Our business model is built on a concept called Human Sigma, which we have implemented in our
strategy of “Engaged Associates delivering Stellar Service to create Customer Advocates”, resulting in a high
performing, very profitable company. The Human Sigma model, identified by Gallup, Inc., begins with
Associates who have taken ownership of their jobs and therefore perform at a higher level. We invest
significantly in training, development and talent management as our Associates are the cornerstone of our
model. This strategy motivates Associates, and unleashes innovation and productivity to engage our most
valuable asset, our customers, by providing them Stellar Service experiences. 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.
Surveys conducted for us by a nationally recognized polling company indicate:
(cid:2) Our Associate Engagement scores consistently rank in the top quartile of companies polled. In 2009 our
engagement ratio was 17.5:1, which means there are 17.5 engaged Associates for every disengaged
Associate. This compares to a 2.6:1 ratio in 2003 and a national average of 1.45:1. Gallup defines “world-
class” as 8:1.
(cid:2) Customer surveys rank us in the top 10% of all companies Gallup surveys, 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 a culture of engaged and empowered Associates, we have become an
employer of choice in our market. During each of the past four years, WSFS was ranked among the top five
“Best Places to Work” by The Wilmington News Journal. In 2009 we were awarded the News Journal’s
number one “Best Place to Work” for large corporations in the state of Delaware.
-4-
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 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:
(cid:2) Small enough to offer customers responsive, personalized service and direct access to decision makers.
(cid:2) 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 and other
service outlets. Additionally, it frustrates bank Associates who are no longer empowered to provide good and
timely service to their customers.
WSFS Bank offers:
(cid:2) 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.
(cid:2) 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.
(cid:2) 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.
(cid:2) Rapid response and a company that is easy to do business with. Our customers tell us this is an important
differentiator from larger, in-market competitors.
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. Additionally, Delaware is one of only seven states with a AAA bond rating
from the three predominant rating agencies. Delaware’s demographics compare favorably to U.S. economic
and demographic averages.
Delaware
9.0%
$
58,380
$
13.0%
(5.14)%
11.68%
(1.6)%
National
Average
10.0%
52,029
9.1%
(4.66)%
6.38%
0.7%
(Most recent available statistics)
Unemployment (For December 2010) (1)
Median Household Income (Average 2008) (2)
Population Growth (2000-2009) (3)
House Price Depreciation (last twelve months) (4)
House Price Appreciation (last five years) (4)
Average GDP Growth (Average 2007-2008) (5)
(1) Bureau of Labor Statistics, Economy at a Glance
(2) U.S. Census Bureau, State & County Quick Facts
(3) U.S. Census Bureau, Population Estimates
(4) Federal Housing Finance Agency, All-Transaction Indexes
(5) Bureau of Economic Analysis, GDP by State
-5-
Balance Sheet Management
We put a great deal of focus on actively managing our balance sheet. This management manifests
itself in:
(cid:2) Prudent capital levels. Maintaining prudent capital levels is key to our operating philosophy. All
regulatory capital levels exceed well-capitalized levels. Our Tier 1 capital ratio was 11% as of December
31, 2009, more than $140 million in excess of the 6% “well-capitalized” level.
(cid:2) We maintain discipline in 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, in 2005 we 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 and hired additional senior credit
administration and asset disposition professionals to manage our portfolio. 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.
(cid:2) 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 or Trust Preferred securities. Our
security purchases have been almost exclusively AAA-rated credits. This philosophy has allowed us to
avoid the significant investment write-downs taken by many of our bank peers.
We have been subject to many of the same pressures facing the banking industry. The extended
recession has negatively impacted our customers and has driven increased provisioning and an increase in our
delinquent loans, problem loans and charge-offs. The measures we have taken strengthen the Bank’s credit
position by diversifying risk and limiting exposure, but do not insulate us from the effects of this recession.
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 and with the expectation that it will earn
an adequate return. As a result, we prudently but aggressively manage our shareholders’ capital with an eye to
this balance.
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. 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.
As we navigate through this recession we are focused on strengthening our franchise to optimize
financial performance when the recession subsides. We are taking steps to strengthen net interest margin,
enhance revenues and manage expenses as we continue to build our market share.
-6-
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:
(cid:2) 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.
(cid:2) Embracing the Human Sigma concept. We are committed to building Associate engagement and customer
advocacy as a way to differentiate ourselves and grow our franchise.
(cid:2) 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.
(cid:2) 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. Our three-year goal is to attain a 100% loan to customer
funding (deposit) ratio. We will continue to grow deposits by:
o Opening new branches in Delaware and contiguous markets.
o Renovating our retail branch network in our current footprint.
o Further expanding our commercial customer relationships with deposit products.
o Finding creative ways to build deposit market share such as targeted marketing programs.
o Acquisitions such as the branch acquisition we completed in 2008. Over the next several
years we intend to grow approximately 80% organically and 20% through acquisition,
although each year’s growth will reflect the opportunities available then.
(cid:2) Growing our Trust and Wealth Management division by leveraging the strong relationships we have with
our current customer base promoting the “Delaware Advantage” and providing unparalleled service to
modestly wealthy clients in our market.
(cid:2) Exploring niche businesses. We are an organization with an entrepreneurial spirit and we are open to the
risk/reward proposition that comes with niche businesses. We have developed a set of decision rules that
will guide our consideration of future niche business opportunities.
Values
We are:
(cid:2) Committed to always doing the right thing.
(cid:2) Empowered to serve our customers and communities.
(cid:2) Dedicated to openness and candor.
(cid:2) Driven to grow and improve.
Our values speak to integrity, service, accountability, transparency, honesty, growth and desire to
improve. They are the core of our culture, they make us who we are and we live them everyday.
-7-
Results
Our focus on these points of differentiation has allowed us to grow our core franchise and build value
for our shareholders. Since 2005, our commercial loans have grown from $1.1 billion to $1.9 billion, a strong
16% compound annual growth rate (CAGR). Over the same period, customer deposits have grown from $1.2
billion to $2.1 billion, a 15% 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. An investment of $100 in WSFS stock in
2000 would be worth $213 at December 31, 2009. By comparison, $100 invested in the Dow Jones Total
Market Index in 2000, would be worth $90 at December 31, 2009 and $100 invested in the Nasdaq Bank Index
in 2000 would be worth $107 at December 31, 2009.
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.
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 $458 million in assets under management at December 31, 2009.
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.”
INVESTMENT ACTIVITIES
At December 31, 2009, WSFS’ total securities portfolio had a carrying value of $727.3 million. The
Company’s strategy has been to avoid credit risk in our securities portfolio. Our 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 taxable investments provide collateral for various Bank obligations. Our municipal securities
provide for a portion of the Bank’s CRA investment program.
(cid:2) WSFS owns no CDOs, Bank Trust Preferred, Agency Preferred securities or equity securities in other
FDIC insured banks or thrifts.
The portfolio is comprised of:
(cid:2) $40.7 million in Federal Agency debt securities with a maturity of four years or less.
(cid:2) $238.5 million in “plain vanilla” Agency MBS. Of these, $85.8 million are sequential pay CMOs with no
contingent cash flows and $152.7 million are Agency MBS with 10-30 year original final maturities.
(cid:2)
$433.8 million in Non-Agency MBS, including purchases of $172.0 million during 2009. These MBS
purchases were all short duration, super-senior tranches. These bonds not only underwent significant
internal pre-purchase due diligence using sophisticated models, but also were rated AAA during 2009,
-8-
under heightened rating agency scrutiny. The remaining bonds are 90% 2005 vintage or earlier and the
remainder is 2006 vintage. They are predominately 15 year pass through cash flow with an average LTV
of 39% (based on scheduled amortization and initial appraisal value) and average FICO scores greater the
700 at origination.
Of the 100 Non-Agency bonds, 28 bonds with a par value of $97.6 million were downgraded as of
December 31, 2009. Based on stress tests of these 28 bonds using proprietary models of two independent
companies, management believes the collection of the contractual principal and interest is probable in nearly
all cases and therefore most of the unrealized losses are considered to be temporary. The Bank took a charge
of $86,000 due to other-than-temporary impairment on one security during 2009 and has not needed to take
any other-than-temporary impairment charge to earnings prior to this year.
Amortized cost of investment securities and investments by category, stated in dollar amounts and as a
percent of total assets, follow:
2009
Percent
of
Amount Assets
At December 31,
2008
Percent
of
Amount Assets
(Dollars in Thousands)
2007
Percent
of
Amount Assets
Held-to-Maturity:
State and political subdivisions
$
709
—% $
1,181
—% $
1,516
0.1%
Available-for-Sale:
Reverse Mortgages
State and political subdivisions
U.S. Government and agencies
Short-term investments:
(530)
3,935
40,695
44,100
—
0.1
1.1
1.2
(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
Interest-bearing deposits in other banks
1,090
$ 45,899
216
—
1.2% $ 49,134
—
1,078
1.4% $ 29,223
—
0.9%
There were no sales of investment securities (excluding mortgage-backed securities) classified as
available-for-sale during 2009, 2008 or 2007. Investment securities totaling $18.6 million (including $566,000 of
municipal bonds) were called by the issuers during 2009 and municipal bonds totaling $404,000 were called by
the issuers during 2008. There were no net losses realized on sales in 2009, 2008 or 2007. 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 2009, 2008 or 2007.
The investment in reverse mortgages are reverse mortgage loans with contracts that require us 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.
-9-
The following table shows the terms to maturity and related weighted average yields of investment
securities and short-term investments at December 31, 2009. Substantially all of the related interest and dividends
represent taxable income.
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
Available-for-Sale:
Reverse Mortgages (3):
Within one year
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
At December 31, 2009
Amount
Weighted
Average
Yield (1)
(Dollars in Thousands)
$
340
(cid:2)
369
709
(530)
825
2,860
250
3,935
10,569
30,126
40,695
44,100
44,809
1,090
1,090
$
45,899
7.53%
(cid:2)
5.20
6.32
(cid:2)
3.84
4.19
4.25
4.12
2.97
2.19
2.39
2.54
2.60
0.01
0.01
2.54%
(1)
(2)
(3)
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.
Yields on state and political subdivisions are not calculated on a tax-equivalent basis since the effect would be
immaterial.
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 a $684.5 million portfolio of mortgage-
backed securities (of which $12.2 million is classified as “trading”) that are BBB+ rated and were purchased in
conjunction with a 2002 reverse mortgage securitization. At December 31, 2009, mortgage-backed securities with
a par value of $250.3 million were pledged as collateral for customer repurchase agreements and municipal
deposits. Accrued interest receivable for mortgage-backed securities was $2.8 million, $2.1 million and $2.0
million at December 31, 2009, 2008 and 2007, respectively. Proceeds from the sale of mortgage-backed securities
classified as available-for-sale totaled $111.5 million with a net gain on sale of $2.0 million in 2009. There were
no sales of mortgage-backed securities available-for-sale in 2008. During 2007, proceeds from the sale of
mortgage-backed securities classified as available-for-sale totaled $2.7 million with a net 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.
2009
Amount Rate
December 31,
2008
Amount Rate
(Dollars in thousands)
2007
Amount Rate
Available-for-Sale:
Collateralized mortgage obligations (1) $ 519,527
FNMA
61,603
FHLMC
44,536
GNMA
46,629
$ 672,295
5.44% $ 419,177
35,578
3.63
30,477
3.87
22,536
4.32
5.00% $ 507,768
5.12% $ 407,113
35,654
4.19
31,357
4.44
15,923
5.01
4.97% $ 490,047
4.97%
4.04
4.31
4.73
4.85%
Trading:
Collateralized mortgage obligations
(1) Includes Agency CMO’s available-for-sale.
CREDIT EXTENSION ACTIVITIES
$
12,183
3.74% $
10,816
6.01% $
12,364
7.79%
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 2005, residential first mortgage loans comprised 25.8% of the loan portfolio, while the
combination of commercial loans and commercial real estate loans made up 61.8%. In contrast, at December
31, 2009, residential first mortgage loans totaled only 14.4%, while commercial loans and commercial real
estate loans have increased to a combined total of 75.7% of the loan portfolio. Traditionally, the majority of
typical thrift institutions’ loan portfolios have consisted of first mortgage loans on residential properties.
-11-
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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
Five Years
Over
Five Years
Total
(Dollars in thousands)
Real estate loans (1)
Commercial mortgage loans
Construction loans
Commercial loans
Consumer loans
$
12,931 $
139,228
187,270
362,935
201,333
$ 903,697 $
45,475
247,997
21,856
472,025
46,817
834,170
$ 290,467
137,155
22,499
285,847
52,498
$ 788,466
$
348,873
524,380
231,625
1,120,807
300,648
$ 2,526,333
Rate sensitivity:
Fixed
Adjustable (2)
Gross loans
$
96,710 $
806,987
$ 903,697 $
317,736
516,434
834,170
$ 261,716
526,750
$ 788,466
$
676,162
1,850,171
$ 2,526,333
(1)
(2)
Excludes loans held-for-sale.
Includes hybrid adjustable-rate mortgages.
Residential Real Estate Lending.
We generally originate residential first 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 very limited basis, we originate or purchase loans with loan-to-value ratios exceeding 80%
without a private mortgage insurance requirement. At December 31, 2009, the balance of all such loans was
approximately $4.9 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. Generally, we sell only those loans
that are originated specifically with the intention to sell on a “flow” basis. However, during 2009 we
completed a bulk sale of $16.7 million in residential first mortgages in order to take advantage of market
improvements and optimize our portfolio.
To protect the propriety of our liens, we require that title insurance be obtained. We also require fire,
extended coverage casualty and flood insurance (where applicable) for properties securing residential loans.
All properties securing residential loans made by us are appraised by independent, licensed and certified
appraisers 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 each 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.
-13-
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 underwriting criteria. We do not originate adjustable-rate mortgages with payment limitations that
could produce negative amortization.
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 re-pricing 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 right 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, $15.1 million, at December 31, 2009 (0.59% of
loans) and no negative amortizing loans or interest only first mortgage loans. Subprime mortgage
delinquencies of 10.15% in our small portfolio are a fraction of the national average of 26.67%, due to our
underwriting and the seasoning of these loans.
Commercial Real Estate, Construction and Commercial Lending.
Pursuant to section 5(c) of the Home Owners’ Loan Act (“HOLA”) 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, the “Wall Street” prime rate or London InterBank Offer Rate (“LIBOR”), in most cases, and are adjusted
periodically as these rates change. The loan appraisal process includes the same evaluation criteria as required
-14-
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 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,
2009, $287.6 million was committed for construction loans, of which $231.6 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 (with a few loans higher), and their terms range from less than one year to seven years. The loans
generally carry variable interest rates indexed to our Wall Street prime rate, national prime rate or LIBOR, at
the time of closing.
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 general economy. The
majority of our commercial and commercial real estate loans are concentrated in Delaware and surrounding
areas.
As of December 31, 2009 our commercial loan portfolio was $1.1 billion and represented 44% of our
total loan portfolio. These loans are diversified by industry, with no industry representing more than 10% of
the portfolio (Retail Trades). We have noticed some weakness in this portfolio primarily from smaller credits
with most of these loans well below $1 million. This weakness was mainly in the small business sector which
has been affected by the prolonged economic downturn.
Our commercial real estate (CRE) portfolio was $524.4 million at December 31, 2009. This portfolio
is diversified by property type, with no type representing more than 28% of the portfolio. The largest
concentration is retail related (shopping centers, malls and other retail) with balances of $146.7 million. The
average loan size of the CRE portfolio is $1.6 million and we have only eight loans greater than $5 million
with no loans greater than $10 million. Most significant projects are located in our geographic footprint and
while we have not experienced significant weakness to date, management continues to monitor this portfolio
closely.
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, 2009, our construction and land development (CLD) loans totaled $231.6 million,
or only 9.3% of our loan portfolio. Since 2005, we have imposed limits on each category of residential and
commercial CLD loans, as well as geographic sub-limits and a sub-limit on “land hold” CLD. Residential
CLD, one of the hardest hit sectors in today’s economy, represents only $109.6 million or 4.3% of the loan
portfolio. Our average residential CLD loan is $1.3 million. Only five of our residential CLD loans exceeded
$5 million in outstandings and our largest geographic concentration (Sussex County, Delaware) represents
only $37.0 million. Our commercial CLD portfolio was only $84.7 million or 3.3% of total loans. We
continue to reduce the amount of exposure we have to these types of loans. We are recording very few new
-15-
CLD loans, the remaining amount of availability on existing loans is minimal and there are very few loans
with interest reserves remaining.
Land loans were $113.6 million at December 31, 2009 including $50.6 million of “land hold” loans
which are land loans not currently being developed.
Only nine commercial relationships have outstandings in excess of $20.0 million and each of these
relationships is collateralized by real estate.
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, 2009, no borrower had collective outstandings exceeding these limits.
Consumer Lending.
Our primary consumer credit products are home equity lines of credit and equity-secured installment
loans. At December 31, 2009, home equity lines of credit totaled $177.4 million and equity-secured
installment loans totaled $102.7 million. In total these product lines represent 93.2% 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
and 75% as of June 2009. At December 31, 2009, we had extended $284.9 million in home equity lines of
credit. Home equity lines of credit offer customers 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 over the
past two years, mainly as a result of the deteriorating economy and declining home values. Since 2008, we
also increased our loan loss reserves related to consumer loans.
-16-
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7
1
-
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 2009, we originated $482.8 million of residential real estate loans. This compares to
originations of $434.7 million in 2008. 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 $4.0
million for the year ended December 31, 2009 and $27.7 million for 2008. Residential real estate loan sales
totaled $269.4 million in 2009 and $30.2 million in 2008. 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.
At December 31, 2009, we serviced approximately $256.7 million of residential mortgage loans for
others compared to $268.8 million at December 31, 2008. We also service residential mortgage loans for our
own portfolio totaling $348.9 million and $422.7 million at December 31, 2009 and 2008, 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 2009, we originated $502.7 million of commercial and commercial real estate
loans compared with $870.4 million in 2008. 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 $23.5
million and $39.3 million in 2009 and 2008, respectively. These amounts represent gross contract amounts and
do not necessarily reflect amounts outstanding on those loans.
Our consumer lending activity is conducted mainly through our branch offices. 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 2006, we formed a new reverse mortgage initiative under the Bank’s retail leadership. While
the Bank’s activity during 2009 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 insured. During 2009 we originated
$46.9 million in reverse mortgages compared to $38.6 million during 2008, of which all were sold (does not
include loan originated by 1st Reverse Financial Services, LLC).
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. During the latter part of 2009, we decided to conduct an orderly wind-
down of 1st Reverse operations (discussed further in Note 20 of the Financial Statements).
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,
-18-
individual officers of the Bank have the authority to 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”. Currently we have nine relationships that exceed this limit. Those
nine relationships were allowed to exceed the “House Limit” because either the relationship contained several
loans/borrowers that have no economic relationship (typically real estate investors with amounts diversified
across a number of properties) or the exposure was marginally in excess of the “House Limit” and the credit
profile was deemed strong.
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, assumption fees and swap 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 $944,000, $1.1 million, and $124,000
during 2009, 2008, and 2007, respectively. Fee income in 2009 was mainly due to fee accretion on existing
loans (including the acceleration of the accretion on loans that paid early), loan growth and prepayment
penalties. The increase in 2008 was mainly the result of several large prepayment penalties. 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, assets acquired through foreclosure and restructured
loans. 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, 2009, net loan growth resulted in the use of $109.3 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,
during 2009 we have made significant improvements to decrease this ratio through increased deposit growth.
-19-
Our long-term goal is 100% by 2012. 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:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
Deposit growth
Brokered deposits
Borrowing from the Federal Home Loan Bank (“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 $438.9 million, or 26%, between December 31, 2008 and December 31, 2009.
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 41 banking offices. Twenty-four banking offices were
located in northern Delaware’s New Castle County, WSFS’ primary market. These banking offices maintain
approximately 167,000 total account relationships with approximately 65,000 total households. Seven banking
offices are located in Delaware’s Sussex County. Five banking offices are located in central Delaware’s Kent
County, three of which are in the state capital, Dover. Four banking offices are located in nearby southeastern
Pennsylvania and one banking office is located in Annandale, Virginia.
Growth in total deposits of $439.5 million, or 21% compares favorably to the national average growth
rate of 6% based on a recent Federal Reserve statistical release (FRB: H.8 Release dated February 5, 2010).
The following table shows the maturity of certificates of deposit of $100,000 or more as of December
31, 2009:
Maturity Period
Less than 3 months
Over 3 months to 6 months
Over 6 months to 12 months
Over 12 months
December 31,
2009
(In Thousands)
$
$
125,491
42,597
38,612
65,634
272,334
-20-
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 0.26% to
5.45% at December 31, 2009. 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 4.75% of its borrowings from them, plus 0.75% of our
unused borrowing capacity. As of December 31, 2009, our FHLB stock investment totaled $39.3 million.
At December 31, 2009 we had $613.1 million in FHLB advances with a weighted average rate of 2.59%
maturing in 2010 and beyond. Six advances totaling $95.0 million 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.
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. We received no dividends
from the FHLB of Pittsburgh during 2009.
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.
Temporary Liquidity Guarantee Program (“TLGP”)
During 2009, we participated in the FDIC’s TLGP Debt Guarantee Program. Under this program we
issued $30.0 million of unsecured debt with a coupon rate of 2.74% and a 3 year maturity.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
During 2009, we purchased federal funds as a short-term funding source. At December 31, 2009, we had
purchased $75.0 million in federal funds at a rate of 0.38%. At December 31, 2008, we had purchased $50.0
million in federal funds at a rate of 0.38%.
During 2009, we sold securities under agreements to repurchase as a funding source. At both December
31, 2009 and 2008, we had $25.0 million of securities sold under agreements to repurchase with a fixed rate of
4.87%. The underlying securities are mortgage-backed securities with a book value of $29.2 million at December
31, 2009.
PERSONNEL
As of December 31, 2009 we had 643 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.
-21-
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 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
-22-
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 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
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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, 2009, 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, 2009, 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 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”). 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. However, due to the recent difficult economic
conditions, deposit insurance per account owner has been raised to $250,000 for all types of accounts until
December 2013. 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.
Under the FDIC’s risk-based assessment system, insured institutions are assigned to one of four risk
categories based on supervisory evaluations, regulatory capital level, and certain other factors, with less risky
institutions paying lower assessments. An institution’s assessment rate depends upon the category to which it
is assigned. No institution may pay a dividend if in default of the federal deposit insurance assessment.
For calendar year 2008, assessments ranged from five to 43 basis points of each institution’s deposit
assessment base. Due to losses incurred by the DIF in 2008 from failed institutions, and anticipated future
losses, the FDIC adopted an across the board seven-basis point increase in the assessment range for the first
quarter of 2009. The FDIC made further refinements to its risk-based assessment system, as of April 1, 2009,
that effectively made the range seven to 77.5 basis points. The FDIC may adjust the scale uniformly from one
quarter to the next, except that no adjustment can deviate more than three basis points from the base scale
without notice and comment rulemaking.
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The FDIC also imposed on all insured institutions a special emergency assessment of five basis points
of total assets minus Tier 1 capital (capped at ten basis points of an institution’s deposit assessment base, as of
June 30, 2009), in order to cover losses to the DIF. That special assessment was collected on September 30,
2009.
In November 2009, the FDIC issued a rule that required all insured depository institutions, with
limited exceptions, to prepay their estimated quarterly risk-based assessments for the fourth quarter of 2009
and for all of 2010, 2011 and 2012 on December 30, 2009. The assessment was calculated by taking the
institution’s actual September 30, 2009 assessment base and increasing it quarterly by an estimated 5% annual
growth rate through the end of 2012. The FDIC also adopted a uniform three basis point increase in assessment
rates effective on January 1, 2011. Under GAAP accounting rules, the prepaid assessments would not
immediately affect a bank’s earnings. Each institution records the entire amount of the prepaid assessment as a
prepaid expense, an asset on its balance sheet, as of December 30, 2009, the date the payment was made. As
of December 31, 2009, and each quarter thereafter, each institution records an expense for its quarterly
assessment invoiced on its quarterly statement and an offsetting credit to the prepaid assessment until the asset
is exhausted. The FDIC would also have the authority to exercise its discretion as supervisor and insurer to
exempt an institution from the prepayment requirement if the FDIC determines that the prepayment would
significantly impair the institution’s liquidity or would otherwise create significant hardship.
Federal law also provides for the possibility that the FDIC may pay dividends to insured institutions
once the DIF reserve ratio equals or exceeds 1.35% of estimated insured deposits.
The Federal Deposit Insurance Reform Act of 2005 provided the FDIC with authority to adjust the
DIF ratio to insured deposits within a range of 1.15% and 1.50%, in contrast to the prior statutorily fixed ratio
of 1.25%. The Restoration Plan adopted by the FDIC seeks to restore the DIF to a 1.15% ratio within a period
of eight years.
Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged
in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC. Management does not know of any
practice, condition, or violation that might lead to termination of the deposit insurance of the Bank.
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 1.06 basis points of assessable deposits in 2009. These assessments will continue until the
FICO bonds mature in 2019.
Temporary Liquidity Guarantee Program. In November 2008, the Board of Directors of the FDIC
adopted a final rule relating to the Temporary Liquidity Guarantee Program (“TLG Program”). Under the TLG
Program, the FDIC will (i) guarantee, through the earlier of maturity or December 31, 2012 (extended from
June 30, 2012 by subsequent amendment), certain newly issued senior unsecured debt issued by participating
institutions on or after October 14, 2008, and before October 31, 2009 (extended from June 30, 2009 by
subsequent amendment) and (ii) provide full FDIC deposit insurance coverage for non-interest 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”) held at participating FDIC insured
institutions through June 30, 2010 (extended from December 31, 2009, subject to an opt-out provision, by
subsequent amendment). We have elected to participate in both guarantee programs and did not opt out of the
six-month extension of the transaction account guarantee program. In 2009, we issued $30.0 million of
unsecured debt under this program.
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, 2009, no reserves were required
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to be maintained on the first $10.7 million of transaction accounts, reserves of 3% were required to be
maintained against the next $55.2 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, 2009 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 (the “EESA”) which, among other measures, authorizes the U.S. Department of the Treasury
(“Treasury”) to purchase from financial institutions and their holding 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, or
“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 (“CPP”), Treasury is purchasing equity securities from participating institutions. On
January 23, 2009, as part of CPP, we sold (i) 52,625 shares of the Registrant’s Fixed Rate Cumulative
Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”) and (ii) a warrant to purchase 175,105
shares of our Common Stock for an aggregate purchase price of $52.6 million in cash. 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 2013 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 encourages 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.
More 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, 2010. 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 pays a fee equal to 300 basis points for its participation in the unsecured debt guarantee program.
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The purpose of these legislative and regulatory actions is to stabilize the U.S. economy and 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.
Higher Federal Deposit Insurance Corporation insurance premiums and assessments will adversely
impact our earnings.
FDIC insurance premiums have increased substantially in 2009 already, and we expect to pay
significantly higher FDIC premiums in the future. A large number of bank failures have significantly depleted
the deposit insurance fund and reduced the ratio of reserves to insured deposits. On May 22, 2009, the Federal
Deposit Insurance Corporation adopted a final rule levying a five basis point special assessment on each
insured depository institution’s assets minus Tier 1 capital as of June 30, 2009. The special assessment was
payable on September 30, 2009. We recorded an expense of $1.7 million during the quarter ended June 30,
2009, to reflect the special assessment. The final rule permits the Federal Deposit Insurance Corporation to
levy up to two additional special assessments of up to five basis points each during 2009 if the Federal Deposit
Insurance Corporation estimates that the Deposit Insurance Fund reserve ratio will fall to a level that the
Federal Deposit Insurance Corporation believes would adversely affect public confidence or to a level that will
be close to or below zero. We participate in the FDIC’s Temporary Liquidity Guarantee Program, or TLG, for
noninterest-bearing transaction deposit accounts. Banks that participate in the TLG’s noninterest-bearing
transaction account guarantee will pay the FDIC an annual assessment of 10 basis points on the amounts in
such accounts above the amounts covered by FDIC deposit insurance. To the extent that these TLG
assessments are insufficient to cover any loss or expenses arising from the TLG program, the FDIC is
authorized to impose an emergency special assessment on all FDIC-insured depository institutions. The FDIC
has authority to impose charges for the TLG program upon depository institution holding companies, as well.
The FDIC has extended the TLG to June 30, 2010, and increased the fee to banks that elect to participate in the
extension to 15 to 25 basis points, depending on the institution’s risk category. WSFS Bank elected to continue
to participate in the TLG. These changes will cause our deposit insurance expense to increase. These actions
could significantly increase our noninterest expense for the foreseeable future.
Any further special assessments that the Federal Deposit Insurance Corporation levies will be
recorded as an expense during the appropriate period. In addition, the Federal Deposit Insurance Corporation
increased the general assessment rate and our prior credits for federal deposit insurance were fully utilized
during the quarter ended June 30, 2009. Therefore, our Federal Deposit Insurance Corporation general
insurance premium expense will increase compared to prior periods.
On November 12, 2009, the FDIC issued a final rule requiring all banks to prepay their estimated
assessments for the fourth quarter of 2009, and for all of 2010, 2011 and 2012 on December 30, 2009. Under
the rule, the assessment rate for the fourth quarter of 2009 and for 2010 will be based on each bank’s base
assessment rate in effect as of September 30, 2009, and the assessment rate for 2011 and 2012 will be equal to
such September 30, 2009 assessment rate plus an additional three basis points. In addition, each institution’s
base assessment rate for each period would be calculated using its assessment base as of September 30, 2009,
adjusted quarterly for an estimated 5% annual growth rate in the assessment base through the end of 2012.
Based on the final rule, we were required to make a payment of $21.3 million to the FDIC on December 30,
2009 and to record the pre-payment as a prepaid expense, which will be amortized to expense over three years.
Whether this prepayment will provide sufficient funding is uncertain. There is no assurance the FDIC will not
require additional funding from the banking system which may negatively impact us.
The prolonged deep recession, 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,
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have negatively impacted the credit performance of mortgage and construction loans that 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 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:
•
•
•
•
•
An increase in the number of borrowers unable to repay their loans in accordance with the
original terms.
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 increases in foreclosures, delinquencies and customer bankruptcies, as
well as more restricted access to funds.
Concentration of loans in our primary market area, which has recently experienced an economic
downturn, may increase risk.
Our success depends primarily on the general economic conditions in the State of Delaware,
southeastern Pennsylvania and northern Virginia, as nearly all of our loans are to customers in this market.
Accordingly, the local economic conditions in these markets have a significant impact on the ability of
borrowers to repay loans as well as our ability to originate new loans. As such, a continuation of the decline in
real estate valuations in these markets would lower the value of the collateral securing those loans. In addition,
a continued weakening in general economic conditions such as inflation, recession, unemployment or other
factors beyond our control could negatively affect our financial results.
If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings will decrease.
We make various assumptions and judgments about the collectability of our loan portfolio, including
the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for
the repayment of many of our loans. In determining the amount of the allowance for loan losses, we review our
loans, our loss and delinquency experience, and we evaluate economic conditions. If our assumptions are
incorrect, our allowance for loan losses may not be sufficient to cover probable incurred losses in our loan
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portfolio, resulting in additions to our allowance. Material additions to our allowance could materially decrease
our net income.
Our loan portfolio includes a substantial amount of commercial real estate and commercial and
industrial loans. The credit risk related to these types of loans is greater than the risk related to
residential loans.
Our commercial loan portfolio, which includes commercial and industrial loans and commercial real
estate loans, totaled $1.9 billion at December 31, 2009, comprising 74% of total loans. Commercial and
industrial loans generally carry larger loan balances and involve a greater degree of risk of nonpayment or late
payment than home equity loans or residential mortgage loans. Any significant failure to pay or late payments
by our customers would hurt our earnings. The increased credit risk associated with these types of loans is a
result of several factors, including the concentration of principal in a limited number of loans and borrowers,
the size of loan balances, and the effects of general economic conditions on income-producing properties. A
significant portion of our commercial real estate and commercial and industrial loan portfolios includes a
balloon payment feature. A number of factors may affect a borrower’s ability to make or refinance a balloon
payment, including the financial condition of the borrower, the prevailing local economic conditions and the
prevailing interest rate environment.
Furthermore, commercial real estate loans secured by owner-occupied properties are dependent upon
the successful operation of the borrower’s business. If the operating company suffers difficulties in terms of
sales volume and/or profitability, the borrower’s ability to repay the loan may be impaired. Loans secured by
properties where repayment is dependent upon payment of rent by third party tenants or the sale of the
property may be impacted by loss of tenants, lower lease rates needed to attract new tenants or the inability to
sell a completed project in a timely fashion and at a profit. The collateral for our commercial loans that are
secured by real estate are classified as 64% owner occupied properties and 36% non-owner occupied
properties.
We are subject to extensive regulation which could have an adverse effect on our operations.
We are subject to extensive regulation and supervision from the Office of Thrift Supervision and the
FDIC. This regulation and supervision is intended primarily for the protection of the FDIC insurance fund, our
depositors and borrowers, rather than for holders of our equity securities. Regulatory authorities have extensive
discretion in their supervisory and enforcement activities, including the imposition of restrictions on
operations, the classification of our assets and determination of the level of the allowance for loan losses. As a
result of recent market conditions, we expect to face increased regulation of our industry. Compliance with
such regulation may increase our costs and limit our ability to pursue business opportunities.
WSFS Bank has entered into a memorandum of understanding.
In December 2009, WSFS Bank entered into an informal memorandum of understanding (the
“Understanding”) with the OTS. An Understanding is characterized by bank regulatory agencies as an informal
action that is neither published nor made publicly available by the agencies and is used when circumstances
warrant a milder response than a formal regulatory action. Regulatory actions, such as this Understanding, are
on the rise as a result of the current severe economic conditions and the related impact on the banking industry.
In accordance with the terms of the Understanding, WSFS Bank has agreed, among other things, to:
(i) adopt and implement a written plan to reduce criticized assets; (ii) review and revise its policies regarding
the identification, monitoring and managing the risks associated with loan concentrations for certain
commercial loans and reduce concentration limits of such loans; (iii) review and revise credit administration
policies and dedicate additional staffing resources to this department; (iv) implement a revised internal review
program; (v) obtain prior OTS approval before increasing the amount of brokered deposits; and (vi) approve a
written strategic business plan and compliance plan concerning the exercise of fiduciary powers.
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We are committed to expeditiously addressing and resolving all the issues raised in the Understanding
and the Board of Directors and management of WSFS Bank have already initiated actions to comply with its
provisions. A material failure to comply with the terms of the Understanding could subject the Bank to
additional regulatory actions and further regulation by the OTS, or result in a formal action or constraints on
the Bank’s business, any of which may have a material adverse effect on our future results of operations and
financial condition.
The fiscal, monetary and regulatory policies of the Federal Government and its agencies could have a
material adverse effect on our results of operations.
The Federal Reserve regulates the supply of money and credit in the United States. Its policies
determine in large part the cost of funds for lending and investing and the return earned on those loans and
investments, both of which affect the net interest margin. It also can materially decrease the value of financial
assets we hold, such as debt securities. Its policies also can adversely affect borrowers, potentially increasing
the risk that they may fail to repay their loans. Additionally, legislation has been introduced into each house of
Congress proposing sweeping financial reforms, including the creation of a Consumer Financial Protection
Agency with extensive powers. If enacted, the legislation would significantly alter not only how financial firms
are regulated but also how they conduct their business. Changes in Federal Reserve policies and our regulatory
environment generally are beyond our control, and we are unable to predict what changes may occur or the
manner in which any future changes may affect our business, financial condition and results of operation.
The securities purchase agreement between us and Treasury permits Treasury to impose additional
restrictions on us retroactively.
On January 23, 2009, as part of the TARP Capital Purchase Program (“CPP”), we entered into a
securities purchase agreement with the Treasury pursuant to which we sold (i) 52,625 shares of the
Registrant’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”) and
(ii) a warrant to purchase 175,105 shares of our Common Stock for an aggregate purchase price of $52.6
million in cash. The Series A Preferred Stock is included in the calculation of Tier 1 capital and pays
cumulative dividends at a rate of 5% per annum for the first five years, and 9% per annum thereafter. The
Treasury warrant has a 10-year term and is immediately exercisable upon its issuance, with an exercise price,
subject to anti-dilution adjustments, equal to $45.08 per share of the Common Stock. 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. 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. The terms of the CPP also restrict our ability to increase dividends on our
common stock and undertake stock repurchase programs. Congress may impose additional restrictions in the
future which may also apply retroactively. These restrictions may have a material adverse affect on our
operations, revenue and financial condition, on the ability to pay dividends, our ability to attract and retain
executive talent and restricts our ability to increase our cash dividends or undertake stock repurchase
programs.
We are subject to liquidity risk.
Due to the continued growth in our lending operations, particularly in corporate and small business
lending, our total loans have exceeded customer deposit funding. Changes in interest rates, alternative
investment opportunities and other factors may make deposit gathering more difficult. Additionally, interest
rate changes or disruptions in the capital markets may make the terms of the borrowings and brokered deposits
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less favorable and may make it difficult to sell securities when needed to provide additional liquidity. As a
result, there is a risk that the cost of funding will increase or that we will not have sufficient funds to meet our
obligations when they come due.
The market value of our securities portfolio may be impacted by the level of interest rates and the credit
quality and strength of the underlying issuers and general liquidity in the market for investment
securities.
If a decline in market value of a security is determined to be other than temporary, under generally
accepted accounting principles, we are required to write these securities down to their estimated fair value with
the amount of impairment related to credit losses recognized in earnings while the amount of impairment
related to all other factors is recognized in other comprehensive income. As of December 31, 2009, we owned
securities classified as available for sale with an aggregate historical cost of $716.5 million and an estimated
fair value of $713.9 million. During the year ended December 31, 2009, we had one security that was
determined to be other than temporarily impaired with a credit loss recognized in earnings of only $86,000,
although we can give no assurance that we will not have additional other than temporarily impaired securities
in the future. Future changes in interest rates or the credit quality and strength of the underlying issuers may
reduce the market value of these and other securities. As a result, changes in values of securities affect our
equity and may impact earnings.
In addition, the value of our BBB+ rated mortgage-backed security is subject to market value
fluctuations. To develop a range of likely fair value prices, our valuation is highly dependent upon various
observable and unobservable inputs. If the value of the observable inputs declines or as a result of economic
conditions, management changes its assumptions regarding what market participants would use in pricing this
asset, the value of this asset may decline. As a result, we would record any market adjustments related to this
asset as a charge to earnings.
We must evaluate whether any portion of our recorded goodwill is impaired. Impairment testing may
result in a material, non-cash write-down of our goodwill assets and could have a material adverse
impact on our results of operations.
At December 31, 2009 we had $13.7 million of goodwill and intangible assets. We have recorded
goodwill because we paid more for some of our businesses than the fair market value of the tangible and
separately measurable intangible net assets of those businesses. We test our goodwill and other intangible
assets with indefinite lives for impairment at least annually (or whenever events occur which may indicate
possible impairment). Goodwill impairment begins with a comparison of the fair value of a reporting unit to its
carrying amount, including goodwill. If the fair value exceeds the carrying amount, goodwill of the reporting
unit is not considered impaired. If the fair value of the reporting unit is less than the carrying amount a Step 2
impairment test is required. Determining the fair value of our reporting unit requires a high degree of
subjective management assumptions. Any changes in key assumptions about our business and its prospects,
changes in market conditions or other external factors, for impairment testing purposes could result in an
impairment charge to earnings.
Our investment in the Federal Home Loan Bank of Pittsburgh (FHLB) stock may be subject to
impairment charges in future periods if the financial condition of the FHLB declines further.
We are required to hold FHLB stock as a condition of membership in the FHLB. Ownership of FHLB
stock is restricted and there is no market for these securities. As of December 31, 2009, the carrying value of our
FHLB stock was $39.3 million. In 2009, the FHLB reported significant losses due to numerous factors, including
other-than-temporary impairment charges on its portfolio of private-label mortgage-backed securities. The FHLB
announced a capital restoration plan in February 2009 which restricts it from repurchasing or redeeming capital
stock or paying dividends. If the FHLB financial condition continues to decline, other-than-temporary
impairment charges related to our investment in FHLB stock may occur in future periods. An additional
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discussion related to our evaluation of impairment of FHLB stock is included in Note 15 to the Consolidated
Financial Statements.
Our Cash Connect Division relies on numerous couriers and armored car companies to transport its
cash and fund the ATMs it services for our customers, and numerous networks to settle its cash.
The profitability of Cash Connect is reliant upon its efficient distribution of large amounts of cash to its
customers’ ATMs using an extensive network of couriers and armored car companies. It is possible those
associated with a courier or armored car company could misappropriate funds belonging to Cash Connect.
Cash Connect has experienced such occurrences in the past, including one in 2001 and potentially another in
2010. For additional information see Note 22 to the Consolidated Financial Statements. In addition, Cash
Connect settles its transactions through a number of national networks. It is possible a network could
fraudulently redirect the settlement of cash belonging to Cash Connect. It is also possible Cash Connect would
not have established proper policies, controls or insurance and, as a result, any misappropriation of funds could
result in an impact to earnings.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
-32-
ITEM 2. PROPERTIES
The following table shows information regarding offices and material properties held by us, and our
subsidiaries, at December 31, 2009:
Location
WSFS :
WSFS Bank Center Branch
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
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
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
Dover Mart
262 S. DuPont Highway
Dover, DE 19901
West Dover Loan Office
Greentree Office Center
160 Greentree Drive
Suite 105
Dover, DE 19904
Owned/
Leased
Date Lease
Expires
Net Book Value
Of Property
or Leasehold
Improvements (1)
Deposits
(In Thousands)
Leased
2011
$723
$1,054,959
Leased
2012
Leased
2011
Master
Lease
Leased
2013
Leased
2023
Leased
2015
53
41
54,830
34,200
7,780
88,805
66
312
583
106,964
101,464
101,840
Leased
2026
1,244
50,620
Leased
2012
Leased
2013
Leased
2011
Leased
2012
244
607
14
24
114,165
70,354
40,879
34,972
Leased
2017
835
58,668
Leased
2010
Leased
2014
29
17
11,510
N/A
-33-
Location
Blue Bell Loan Office
721 Skippack Pike
Suite 101
Blue Bell, PA 19422
Glen Eagle
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
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 LPO
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
Owned/
Leased
Date Lease
Expires
Net Book Value
Of Property
or Leasehold
Improvements (1)
Deposits
(In Thousands)
Leased
2012
$18
$8,993
Leased
2024
Leased
2013
Leased
2014
Owned
Leased
2010
Leased
2015
Leased
2015
Leased
2013
Leased
2015
Leased
2024
Leased
2028
9
25
9
636
33
22
511
84
812
879
859
13,751
12,531
34,849
N/A
15,876
28,358
89,418
N/A
67,230
32,656
50,166
Leased
2010 (4)
N/A
N/A
Owned
2,134
32,416
Leased
2026
1,157
35,557
-34-
Location
Smyrna
Simon’s Corner Shopping Center
400 Jimmy Drive
Smyrna, DE 19977
Oxford, LPO
59 South Third Street
Suite 1
Oxford, PA 19363
Greenville
3908 Kennett Pike
Greenville, DE 19807
WSFS Bank Center (2)
500 Delaware Avenue
Wilmington, DE 19801
Market Street Branch
833 Market Street
Wilmington, DE 19801
Annandale, VA
7010 Little River Tnpk.
Suite 330
Annandale, VA 22003
Oceanview
69 Atlantic Avenue
Oceanview, DE 19970
Selbyville
Strawberry Center
Unit 2
Selbyville, DE 19975
Lewes Branch
34383 Carpenters Way
Lewes, DE 19958
Millsboro
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
Glen Mills Shopping Center
Route 202
Glen Mills, PA 19342
Owned/
Leased
Date Lease
Expires
Leased
2028
Net Book Value
Of Property
or Leasehold
Improvements (1)
Deposits
(In Thousands)
$1,190
$34,561
Leased
2011
24
7,527
Owned
2,020
44,415
Leased
2019
1,837
N/A
Leased
2010
Leased
2011
35
12
20,698
834
Leased
2024
1,346
11,915
Leased
2013
49
8,391
Leased
2028
313
18,258
Leased
2029
1,212
7,062
Leased
2011
Leased
2013
Owned
Leased
2010
57
57
93
57
27,893
16,779
7,015
10,492
Leased
2039
256
N/A
_________
$2,561,871
-35-
Location
Owned/
Leased
Date Lease
Expires
Net Book Value
Of Property
or Leasehold
Improvements (1)
(In Thousands)
Deposits
Cypress Capital Management, LLC
1220 Market Street
Suite 704
Wilmington, DE 19801
Leased
2010
5
N/A
(1)
(2)
(3)
(4)
The net book value of all the Company’s investment in premise and equipment totaled $36.1 million at December 31, 2009.
Location of Corporate Headquarters and Montchanin Capital Management, Inc.
Includes Fairfax Branch office and shopping center which is under a master lease. Net book value represents the value of the
entire facility.
This lease expired in February of 2010 and was not renewed. The Company no longer occupies this property.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings to be disclosed under this item.
ITEM 4. [Reserved]
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 Global Select Market under the symbol WSFS. At
December 31, 2009, we had 1,122 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, 2009 was $25.63.
2009
2008
Stock Price Range
Low
High
Dividends
4th
3rd
2nd
1st
4th
3rd
2nd
1st
$
$
$
$
$
$
$
$
24.16
26.00
20.78
16.47
35.51
40.04
42.79
41.12
$
$
$
$
$
$
$
$
30.18
32.70
33.85
49.50
60.50
65.50
53.84
54.17
$
$
$
$
$
$
$
$
$
$
0.12
0.12
0.12
0.12
0.48
0.12
0.12
0.12
0.10
0.46
-36-
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, 2004, 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, 2004 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, 2004 through December 31, 2009
200
150
s
r
a
l
l
o
D
100
50
0
2004
2005
2006
2007
2008
2009
WSFS Financial Corporation
Dow Jones Total Market Index
Nasdaq Bank Index
Cumulative Total Return
2006 2007
2005
2008
2009
$103
106
98
$113
123
111
$85
130
90
$82
82
71
$45
106
59
WSFS Financial Corporation
Dow Jones Total Market Index
Nasdaq Bank Index
2004
$100
100
100
-37-
ITEM 6. SELECTED FINANCIAL DATA
2009
2008
2007
(Dollars in Thousands, Except Per Share Data)
2006
2005
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)
$ 3,748,507 $ 3,432,560 $ 3,200,188 $ 2,997,396 $ 2,846,752
1,775,294
2,479,155
56,704
46,047
785
(530)
46,466
40,395
620,323
681,242
1,446,236
2,561,871
1,127,997
787,798
67,011
67,011
181,975
301,800
24
37
2,443,835
49,749
(61)
39,521
498,205
2,122,352
999,734
67,011
216,635
35
2,019,741
53,893
598
41,615
516,711
1,756,348
935,668
67,011
212,059
27
2,233,980
26,235
2,037
46,615
496,492
1,827,161
1,068,149
67,011
211,330
29
For the Year Ended December 31,
Interest income
Interest expense
Noninterest income
Noninterest expenses
Provision (benefit) for income taxes
Net Income
Dividends on preferred stock and
accretion of discount
Net (loss) income allocable to
common stockholders
$
157,730 $
53,086
50,241
108,504
(2,093)
663
166,477 $
77,258
45,989
89,098
6,950
16,136
189,477 $
107,468
48,166
82,031
13,474
29,649
177,177 $
99,278
40,305
69,314
15,660
30,441
136,022
62,380
34,653
62,877
14,847
27,856
2,590
-
-
-
-
(1,927)
16,136
29,649
30,441
27,856
Earnings (loss) per share allocable to
common stockholders:
Basic
Diluted
Interest rate spread
Net interest margin
Efficiency ratio
Noninterest income as a percentage of
total revenue (5)
Return on average equity
Return on average assets
Average equity to average assets
Tangible equity to assets
Tangible common equity to assets
Ratio of nonperforming assets to total
assets
(0.30)
(0.30)
3.10%
3.30
69.56
32.21
0.24
0.02
7.86
7.72
6.31
2.19
2.62
2.57
2.94%
3.13
65.36
33.74
7.30
0.50
6.86
5.88
5.88
1.04
4.69
4.55
2.80%
3.09
62.48
36.69
14.34
0.98
6.87
6.52
6.52
0.99
4.59
4.41
2.70 %
2.98
58.09
33.78
15.42
1.03
6.68
7.00
7.00
0.14
4.10
3.89
2.91%
3.13
57.46
31.67
14.78
1.05
7.10
6.33
6.33
0.12
(1)
(2)
(3)
(4)
(5)
Includes loans held-for-sale.
Includes securities available-for-sale and trading.
Borrowings consist of FHLB advances, securities sold under agreement to repurchase and other borrowed funds.
WSFS opened two branches in 2009, acquired six (keeping four open and closing two) in 2008, opened three branches
and closed one branch in 2007, and opened three in 2006.
Computed on a fully tax-equivalent basis.
-38-
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 fiduciary powers than most other
financial institutions. We have served the residents of the Delaware Valley for over 177 years. We are the
largest thrift institution headquartered in Delaware and the fourth largest financial institution in the state on the
basis of total deposits traditionally garnered in-market. Our primary 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 strategy of “Engaged Associates delivering Stellar Service to
create Customer Advocates” focuses on exceeding customer expectations, delivering stellar service and building
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 Trust and Wealth Management, 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 41 banking
offices located in Delaware (36), Pennsylvania (4), and Virginia (1) 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.
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 $458 million in assets under management at December 31, 2009.
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
-39-
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 $663,000, or a net loss allocable to common
stockholders’ of $1.9 million (after preferred stock dividends), for a loss per common share of $0.30 for the
year ended December 31, 2009, compared to net income of $16.1 million or $2.57 per diluted common share
and net income of $29.6 million or $4.55 per diluted common share for the years ended December 31, 2008
and 2007, respectively.
Net Interest Income. Net interest income increased $15.4 million, or 17%, to $104.6 million in 2009
compared to $89.2 million in 2008. The net interest margin for 2009 was 3.30%, up 17 basis points (0.17%)
from 2008. These increases were the result of the Company’s growth in core deposits (which improved our
funding mix) combined with active management of deposit and wholesale pricing. In comparison to 2008, the
yield on interest-bearing liabilities declined by 1.03%, while the yield on interest-earning assets only declined
by 0.87% due to ongoing loan pricing management. Also, contributing to the increase in net interest income
was an increase in our mortgage-backed securities (MBS) portfolio during 2009, due to purchases made
throughout the year to take advantage of market opportunity and optimize our capital position. In addition, the
yield on our loan portfolio remained relatively stable.
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 liability sensitive balance sheet combined with active management of loan and 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 during the year 2008. During 2008 we lost $1.1 million on reverse mortgages compared to income
of $2.0 million in 2007.
-40-
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 rates 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,
Volume
2009 vs. 2008
Yield/Rate
Net
Volume
2008 vs. 2007
Yield/Rate
Net
$
(Dollars in Thousands)
Interest Income:
Commercial real estate loans
Residential real estate loans
Commercial loans (1)
Consumer loans
Mortgage-backed securities
Investment securities
FHLB Stock and deposits in other
banks
Favorable (unfavorable)
Interest expense:
Deposits:
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
942
(2,020)
11,368
1,043
4,723
149
(113)
16,092
233
2,045
89
3,700
(479)
1,320
(6,559)
—
345
694
$ 15,398
$
$
(11,287)
(1,732)
(7,171)
(3,556)
(147)
519
(1,465)
(24,839)
(649)
(3,097)
(304)
(4,686)
(767)
(6,825)
(4,755)
(1,478)
(2,305)
(24,866)
27
$ (10,345) $
(3,752)
4,197
(2,513)
4,576
668
5,722
(1,280)
9,460
894
(588)
504
$ (15,131) $ (9,409)
(920)
(5,936)
(2,586)
(253)
(3,106)
360
(15,396 )
(3,480 )
335
(3,610 )
(1,578)
(8,747)
155
14,867
(945 )
(37,867)
(790)
(23,000)
(416)
(1,052)
(215)
(986)
(1,246)
(5.505)
(11,314)
(1,478)
(1,960)
(24,172)
$ 15,425 $
217
(419)
(106)
2,933
(229)
258
3,460
—
1,500
7,614
7,253
(546)
(5,542)
(837)
(4,515)
(329)
(5,961)
(943)
(1,582)
(1,856)
(6,860)
(12,401)
(1,478)
(3,789)
(37,824 )
(2,085)
(6,602)
(8,941)
(1,478)
(2,289)
(30,210)
(43) $ 7,210
$
(1) The tax-equivalent income adjustment is related to commercial loans.
-41-
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,
2009
2008
2007
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
Customer time deposits
$
$
$
Total interest-bearing customer
deposits
Other jumbo certificates of deposit
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
$
$
781,433 $
400,561
1,063,339
301,234
2,546,567
574,176
47,710
39,839
3,208,292
(40,731)
57,396
204,912
59,750
94,213
3,583,832
230,738 $
430,437
221,913
662,733
1,545,821
77,087
337,394
1,960,302
642,496
67,011
206,635
2,876,444
392,069
33,488
—
281,831
3,583,832
331,848
36,302
21,779
55,027
15,140
128,248
28,560
922
-
157,730
4.65%
5.44
5.21
5.03
5.08
4.97
1.93
0.00
4.95
46,647
25,531
50,830
17,653
140,661
23,984
254
1,578
166,477
6.11%
5.84
6.08
6.24
6.10
5.00
0.74
3.68
5.82
$
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
1,064
5,909
736
20,775
28,484
3,091
8,234
39,809
29,620
3,275
4,554
77,258
0.61%
1.96
0.37
3.82
2.34
3.29
2.91
2.50
3.46
4.81
2.45
2.88
648
4,857
521
19,789
25,815
1,845
2,729
30,389
18,306
1,797
2,594
53,086
$
0.28%
1.13
0.23
2.99
174,080
300,775
197,175
543,808
1.67
2.39
0.81
1.55
2.81
2.64
1.26
1.85
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
$
$
$
687,614
459,043
709,507
270,518
2,126,682
491,650
29,130
40,137
2,687,599
(28,192)
70,387
158,091
56,307
67,711
3,011,903
148,039
312,192
211,453
476,159
1,147,843
98,452
277,860
1,524,155
765,974
67,011
147,251
2,504,391
272,964
27,737
38
206,773
$
3,011,903
$
183,208
$
56,056
26,451
56,766
20,239
159,512
24,237
3,360
2,368
189,477
8.15%
5.76
8.05
7.48
7.55
4.93
11.53
5.90
7.09
1,393
11,870
1,679
22,357
37,299
5,176
14,836
57,311
38,561
4,753
6,843
107,468
0.94%
3.80
0.79
4.70
3.25
5.26
5.34
3.76
4.97
7.00
4.65
4.29
2.80%
3.09%
$
104,644
$
89,219
$
82,009
3.10%
3.30%
2.94%
3.13%
(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.
-42-
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, 2009, we recorded a provision for loan losses of $47.8 million
compared to $23.0 million in 2008 and $5.0 million in 2007. The $47.8 million was the result of credit risk
migration and collateral depreciation in our commercial loan portfolio due to economic conditions (mostly in
our construction and land development (CLD) portfolio), net charge-offs, continued growth of our loan
portfolio and restructured consumer loans. The increase in the provision for loan loss reflects the protracted
economic recession and its adverse effects on our customers’ ability to pay their obligations.
Noninterest Income. Noninterest income increased $4.3 million to $50.2 million in 2009, or 9%, from
$46.0 million in 2008. A significant amount of this increase was due to securities gains, which increased $3.3
million during 2009. This security gain included $3.0 million of incremental mark-to-market adjustments on
the BBB+ mortgage-backed security (“MBS”), as we recognized positive adjustments of $1.4 million during
2009 compared with negative adjustments of $1.6 million in 2008. The securities gains increase also included
$2.0 million in gains from the sale of securities during 2009. Partially offsetting these increases was the
absence of any gains on the sale of Visa, Inc. shares in 2009. During 2008 we recognized $1.8 million in gains
on sale of Visa, Inc shares related to the completion of their initial public offer. In addition to securities gains,
mortgage banking activities increased $1.5 million due to increased mortgage loan originations and sales,
including a $16.7 million bulk loan sale completed during 2009. Also during 2009, loan fee income increased
$1.2 million as a result of increased fees from 1st Reverse, our majority owned national reverse mortgage
subsidiary. During the second quarter of 2009 the decision was made to conduct an orderly wind-down of 1st
Reverse which was completed in the fourth quarter of 2009. These noninterest income increases were partially
offset by a reduction in BOLI income of $869,000 due to lower yields in underlying investments funding this
program and a $707,000 decrease in credit/debit card and ATM income which was the result of reduced prime-
based ATM bailment fees from Cash Connect resulting from the lower interest rate environment. Although
noninterest income was negatively impacted by lower bailment fees, the net interest margin benefited due to
lower funding costs for these borrowings.
Noninterest income decreased $2.2 million, or 5%, to $46.0 million in 2008, 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. 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 2009, income from BOLI decreased $483,000 from the prior year. 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. Deposit service charges also increased $1.1
million, as 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 the mark-
to-market adjustment on the BBB+ rated MBS.
Noninterest Expenses. Noninterest expenses increased $19.4 million, or 22%, to $108.5 million in
2009 from $89.1 million in 2008. A large portion of the increase is attributable to $6.1 million of non-routine
items recorded during 2009, including a $1.9 million charge related to the wind-down of 1st Reverse, $1.7
million for the FDIC Special Assessment, $1.5 million of expense resulting from a wire fraud and $1.0 million
of due diligence expenses on an acquisition prospect in which discussions have terminated. For additional
information on any of these non-routine items see Note 20 to the Consolidated Financial Statements.
Excluding the non-routine items, the remaining increase was mainly due to an additional $5.4 million of FDIC
insurance premium expense during 2009. Also during 2009, write-downs of assets acquired through
foreclosure (REO) and other credit related costs increased $3.3 million, related to additional deterioration in
housing prices and appraisal values. Further, during 2009 professional fees increased $3.0 million mainly due
to increased credit related costs. In addition, the increase in professional fees included a $1.2 million accrual of
consulting expenses related the Company’s efficiency effort: Creative Opportunities for Revenues and
Expenses (CORE) program. This expense accrual is for the portion of the consultant’s work that is
substantially performed, while the consultant’s payments, expense savings and revenue enhancements will
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largely be realized in future periods. Lastly, salaries, benefits and other compensation as well as occupancy
and equipment expenses increased $3.4 million due to the continued growth of our banking franchise during
2009. This growth included the full year impact of seven branch openings and renovations during 2008
(including four branches from Sun National Bank) and an additional two new branches and two branch
relocations during 2009.
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 the 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 in 2008. Further,
during 2008 professional fees increased $1.3 million as a result of legal fees reflecting increased costs relating to
problem credits.
Income Taxes. We recorded a $2.1 million tax benefit for the year ended December 31, 2009
compared to tax expense of $7.0 million and $13.5 million for the years ended December 31, 2008 and 2007,
respectively. The 2009 tax benefit is a result of our pre-tax operating loss, combined with tax free income and
a reduction in unrecognized tax benefits during the year. Volatility in effective tax rates is directly impacted
by the level of pretax income or loss combined with the amount of tax-free income as well as the effects of
unrecognized tax benefits. 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 $315.9 million, or 9%, during 2009 to $3.7 billion. This increase was due to
growth in mortgage-backed securities, which grew $183.0 million, or 37% and cash in non-owned ATMs
which increased $75.0 million, or 39% during 2009. Additionally, net loans increased by $35.3 million, or 1%
during the year. Funding this growth was an increase in customer deposits of $438.9 million, or 26% and an
increase in stockholders’ equity of $85.2 million, or 39%. Partially offsetting these funding increases was a
decrease in wholesale funding, including $202.8 million, or 25% decrease in Federal Home Loan Bank
advances.
Cash in non-owned ATMs. During 2009, cash in non-owned ATMs managed by Cash Connect, our
ATM unit, increased $74.9 million, or 39%. During the year one of our cash management partners decided to
no longer invest their cash in bailments and as a result we replaced $28 million of external funding with our
own cash. In addition, the number of ATMs serviced by Cash Connect increased from 10,031 at December 31,
2008 to 10,791 at December 31, 2009. Of these, 364 ATMs were WSFS owned and operated during 2009.
Mortgage-backed Securities. Investments in mortgage-backed securities increased $183.0 million
during 2009 to $681.2 million. Included in the increase was the purchase of $172.0 short-duration; recently
AAA-rated, super senior tranches of securities during fourth quarter. There were proceeds from sales of $111.5
million in mortgage-backed securities during 2009 for a gain of $2.0 million. The weighted average duration of
the mortgage-backed securities portfolio was 2.4 years at December 31, 2009.
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.
-44-
Loans, net. Net loans increased $35.3 million, or 1%, during 2009. This included increases of $121.9
million, or 7%, in commercial and commercial real estate loans, and $3.9 million, or 1%, in consumer loans.
This increase was partially offset by a decrease of $68.2 million, or 16%, in residential mortgage loans mainly
due to our strategy to originate then sell these loans in the secondary market to generate fee income. First
mortgage originations for the year totaled $102.7 million, the majority of which were subsequently sold.
Customer Deposits. Customer deposits increased $438.9 million, or 26%, during 2009 to $2.1 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 19 to the Consolidated Financial Statements. Core deposit relationships (demand
deposits, money market and savings accounts) increased $411.5 million, or 39%, during 2009. In addition,
customer time deposits (CDs) increased $27.4 million, or 4%, in 2009. The table below depicts the changes in
customer deposits over the last three years:
2009
Year Ended December 31,
2008
(In Millions)
2007
Beginning balance
Interest credited
Deposit inflows, net
Ending balance
$
$
1,707.1 $
27.2
411.7
2,146.0 $
1,479.2 $
34.6
193.3
1,707.1 $
1,343.7
32.4
103.1
1,479.2
Borrowings and Brokered Certificates of Deposit. Borrowings and brokered certificates of deposit
decreased by $176.7 million, or 13%, during 2009. This decrease was primarily the result of a decrease in
FHLB Advances of $202.8 million, or 25%, as customer deposits replaced these borrowings and we improved
our funding mix. Partially offsetting this decrease was a $35.2 million, or 11%, increase in brokered deposits.
Also during 2009 we issued $30.0 million of debt under the FDIC’s Temporary Liquidity Program.
Stockholders’ Equity. Stockholders’ equity increased $85.2 million to $301.8 million at December 31,
2009. This increase was mainly due to the sale of senior preferred stock to the U.S. Department of the
Treasury under its Capital Purchase Program (“CPP”) totaling $52.6 million and the sale of $25.0 million of
common stock to Peninsula Investment Partners, L.P (“Peninsula”). The increase also included $10.6 million
in comprehensive income mainly due to an increase in the fair value of securities available-for-sale. Partially
offsetting these increases was the payment of cash dividends (both preferred and common stock) totaling $3.1
million during 2009. During 2009 we did not repurchase any shares of common stock.
ASSET/LIABILITY MANAGEMENT
Our primary asset/liability management goal is to maximize long term 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.
-45-
The repricing and maturities of our interest-rate sensitive assets and interest-rate sensitive liabilities at
December 31, 2009 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
$
733,777 $ 191,185 $
919,473
201,292
143,616
8,377
14,283
1,090
2,021,908
144,906
45,620
370,206
—
32,416
—
784,333
123,121 $ 1,048,083
1,112,479
48,100
299,830
52,918
681,242
167,420
8,366
(11)
84,822
38,123
1,090
—
3,235,912
429,671
545,834
112,456
430,720
69,208
345,388
405,517
67,011
119,654
2,095,788
9
4
241,324
—
1,255
207,627
—
55,000
505,219
270,515
112,461
1,221
—
—
—
—
—
384,197
816,358
224,921
673,265
69,208
346,643
613,144
67,011
174,654
2,985,204
$
(73,880) $ 279,114 $
45,474 $
250,708
96.47%
(1.97%)
Includes commercial mortgage, construction, and residential mortgage loans.
(1)
(2) Loan balances exclude nonaccruing loans, 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 75% of money market and 50% of interest-
bearing demand deposits are sensitive to interest rate changes and that 50% 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.
-46-
During the first quarter of 2010 we executed $75.0 million of intermediate-term FHLB Advances in
order to reduce the sensitivity of our net interest income to increases in market interest rates.
REVERSE MORTGAGES
We hold an investment in reverse mortgages of $(530,000) at December 31, 2009 representing a
participation in reverse mortgages with a third party. Eighteen loans remain in this portfolio. The loans 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 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, 2009, we lost $464,000 in interest income on reverse
mortgages. 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. The losses in 2008 and 2009 primarily resulted from the
decrease in the values of the properties securing the mortgages, based on annual re-evaluations and consistent
with the decrease in home values over the past two years.
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 0.0% 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 $19,000.
Conversely, if the long-term appreciation rate was decreased to -0.5%, the resulting impact on income would
have been $(17,000). If housing values do not change (0.0% annual appreciation for all future years) the
resulting impact on income would be $(8,000).
We also hold $12.2 million fair value of 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 Holding, Inc. “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 a number of 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 ASU 815-10, Derivatives and
Hedging (SFAS No. 161, Disclosure about Derivative Instruments and Hedging Activities – an amendment of
FASB Statement No. 133) and is carried in our financial statements at cost. During the third quarter of 2008
Lehman Brothers filed for bankruptcy. During 2009 we filed a “Proof of Claim” against Lehman Brothers
regarding the option on the Class “O” Certificate. Also during 2009 we notified Lehman Brothers that we
were exercising our option on these securities. The status of this exercise is pending.
During 2006, we formed a new reverse mortgage initiative, originating reverse mortgages primarily in
our retail banking footprint. In 2009 we ranked as the #1 reverse mortgage lender in Delaware and seventy-
seventh nationwide. While our activity during the past two years has been limited to acting as a correspondent
-47-
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.
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. During the latter part of 2009, we decided to conduct an
orderly wind-down of 1st Reverse operations (discussed further in Note 19 of the Financial Statements).
NONPERFORMING ASSETS
Nonperforming assets, which include nonaccruing loans, nonperforming real estate investments and
assets acquired through foreclosure and troubled debt restructures, 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 assessment of the ultimate collectability of principal and interest. Past due loans are
defined as loans contractually past due 90 days or more as to principal or interest payments but which remain in
accrual status because they are considered well secured and in the process of collection.
The following table 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
2009
2008
2007
2006
2005
$ 8,328 $
925
155
727
1,567
36
3,410
59
—
$ 82,160 $ 35,760 $ 31,809 $ 4,220 $ 3,469
986 $ 17,187 $ 1,282 $
352
5,748
4,753
16,595
28,434
4,471
2,855
818
2,156
9,958
44,681
65,941
8,945
7,274
835
3,873
2,417
6,794
31,106
703
—
557
500
1,493
—
3,832
388
—
Past due loans:
Residential mortgages
Commercial and commercial mortgages
Consumer
Total past due loans
$ 1,221 $ 1,313 $
105
97
—
26
$ 1,423 $ 1,339 $
388 $
14
173
575 $
219 $
3
29
251 $
327
—
59
386
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)
2.61%
2.12
2.19
63.10
1.15%
1.26
1.04
108.30
1.38%
1.12
0.99
78.80
0.19%
1.34
0.14
705.32
0.19%
1.41
0.12
709.47
(1) Total loans exclude loans held-for-sale.
(2) The applicable allowance represents general valuation allowances only.
Total non-performing assets increased $46.4 million during 2009. As a result, nonperforming assets as a
percentage of total assets increased from 1.04% at December 31, 2008 to 2.19% at December 31, 2009.
Nonperforming assets increased in all portfolios except commercial mortgages. Nonaccruing construction loans
increased $28.1 million during 2009 with a bulk of the dollar increase related to six borrowing relationships that
were placed on nonaccrual status during the year. Nonaccruing commercial loans increased by $7.3 million.
Except for the addition of two larger relationships ($2.6 million in balances), the increase was mostly due to the
-48-
migration of small business loans during 2009. Assets acquired through foreclosure increased $4.5 million
predominantly due to the foreclosure of two residential construction and land development loans during the year.
Restructured loans increased by $4.4 million. All of the restructured loans continue to be residential mortgage
and consumer loans. Concessions on these loans consisted mainly of forbearance agreements, reduction in
interest rate or extensions of maturity. All loans classified above as restructured are accruing and there were only
$1.0 million of restructured loans included in nonaccruing loan balances. Nonaccruing restructured loans remain
in nonaccrual status until there has been sustained historical repayment performance for a reasonable period,
generally six months.
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
2009
2008
2007
$
$
35,760 $
100,925
(19,133)
(6,236)
(29,156)
82,160 $
31,809 $
48,152
(26,574)
(1,345)
(16,282)
35,760 $
4,220
37,017
(3,029)
(295)
(6,104)
31,809
As of December 31, 2009, we had $98.5 million of loans, which although performing at that date,
require increased supervision and review, and may, depending on the economic environment and other factors,
become nonperforming assets in future periods. The amount of such loans at December 31, 2008 was $70.2
million. The majority of the loans are secured by commercial real estate, with lesser amounts being secured by
residential real estate, inventory and receivables.
At December 31, 2009, we did not have a material amount of loans not classified as non-accrual, 90 days
past due or restructured but where known information about possible credit problems of borrowers caused us to
have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and may
result in disclosure as non-accrual, 90 days past due or restructured.
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
judgment 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
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ten-year net charge-off history. The average loss allowance per homogenous pool is based on the product of the
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:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
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. In addition, we also contract with a loan review firm to review portions
of the portfolio.
During 2009, the provision for loan losses was affected by the protracted economic recession; including
(1) increased charge-offs; (2) continued migration in loans to lower credit grades; (3) continued deterioration of
collateral values; and (4) an increase in estimated disposition costs.
Increases in the allowance for loan losses were also due to rising trends in our past due and
nonperforming loans (as discussed in the earlier nonperforming assets section) and rising unemployment rates.
This increase in non-performing loans is a direct result of the weak economic environment, impacting
numerous borrowers’ ability to pay as scheduled. This has resulted in increased loan delinquencies, and in
some cases decreases in the collateral value used to secure real estate loans and the ability to sell the collateral
upon foreclosure. Collateral value is assessed based on collateral value trends, liquidation value trends, and
other liquidation expenses to determine appropriate discounts that may be needed. In response to this
deterioration in real estate loan quality, management is aggressively monitoring its classified loans and is
continuing to monitor credits with material weaknesses.
As a result of continued economic deterioration in 2009, a detailed review and analysis of our
commercial loan portfolio was completed during the year. This included a review of every commercial loan
commitment greater than $1 million, regardless of risk rating. This represented 74% of our commercial
portfolio. The review considered cash flows from the business or project, appropriately conservative real
estate values, a careful view of guarantor support, and the direction of the economy.
Our real estate portfolio has approximately $524.4 million of commercial real estate loans, $231.6
million of construction loans, $357.3 million in first lien mortgage loans (only $15.1 million of which are
considered subprime loans), and $284.3 million in home equity loans and lines as of December 31, 2009. We
do not have any option ARM products in our portfolio. We consider our construction loans our riskiest loans
within our real estate portfolio. Construction loans are typically comprised of loans to borrowers for real estate
to be developed. Normally, these loans are repaid with the proceeds from the sale or lease of the developed
property. The greater degree of strain on these real estate types of loans and the significance to our overall
loan portfolio has caused us to apply a greater degree of scrutiny in analyzing the ultimate collectability of
amounts due. A number of these borrowers are having financial difficulties that may affect their ability to
repay their loans. Our analysis has resulted in a significant provision expense to increase our allowance to
appropriate levels based on continued deterioration in the portfolio during 2009.
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The table below represents a summary of changes in the allowance for loan losses during the periods
indicated:
Year Ended December 31,
2009
2008
2007
2006
2005
(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
$
31,189
47,811
$
25,252
23,024
$
27,384
5,021
$
25,381
2,738
$ 24,222
2,582
1,164
15,932
5,796
1,216
2,458
26,566
38
379
150
380
65
1,012
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
11
127
173
446
139
896
75
—
470
607
483
1,635
14
170
343
217
156
900
90
104
1,048
—
631
1,873
59
42
209
—
140
450
Net charge-offs
Ending balance
25,554
53,446
$
$
17,087
31,189
$
7,153
25,252
$
735
27,384
1,423
$ 25,381
Net charge-offs to average gross loans
outstanding, net of unearned income
1.01%
0.74%
0.34%
0.04%
0.09%
(1) Includes commercial mortgage and construction loans.
(2) Prior to April 2006, overdraft charge-offs/recoveries were recognized in other operating expense.
Net charge-offs did increase this year as we moved loans through the resolution process in some of the
larger construction loans we identified earlier in this cycle. During 2009, net charge-offs increased to $25.6
million, or 1.01% of average loans, from $17.1 million, or 0.74% of average loans in 2008. This is due to the
fact we provide for losses earlier in the problem loan identification process when they are probable and charge
the loans off and utilize the provision when the losses are certain or near certain.
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:
At December 31,
2009
Amount Percent
2008
2007
Amount
Percent
Amount
Percent
2006
Amount Percent
2005
Amount Percent
(Dollars in Thousands)
Residential real estate
Commercial real estate
Commercial
Consumer
Total
$
4,073
17,082
24,834
7,457
$ 53,446
13.8%
29.9%
44.4%
11.9%
100.0%
$
2,480
10,656
12,510
5,543
$ 31,189
17.1% $
32.8%
38.1%
12.0%
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
$ 25,381
25.4%
32.7%
28.3%
13.6%
100.0%
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LIQUIDITY
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, 2009, net loan growth resulted in the use of $103.8 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. Our loan-to-deposit ratio has been well above 100% for many years, however
during 2009 we have made significant improvements in this ratio through increased deposit growth. At
December 31, 2009 our loan-to-deposit ratio was 114% compared to 143% at December 31, 2008. Our long-
term goal is 100% by 2012. 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:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
Deposit growth
Brokered deposits
Borrowing from the Federal Home Loan Bank
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 southeastern Pennsylvania and attracting new customers to provide additional deposit growth.
Customer deposit growth was strong, equaling $438.9 million, or 26% between December 31, 2008 and
December 31, 2009.
Our portfolio of high-quality, liquid investments, primarily short-duration mortgage-backed securities
and Agency notes also provide a source of cash flow to meet current cash needs. If necessary, portions of this
portfolio, as well as portions of the loan portfolio, could be sold to provide liquidity or new loans. During the
year ended December 31, 2009, $21.1 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, 2009, we had $376.3 million in funding capacity at the Federal Home Loan Bank of
Pittsburgh. 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
-52-
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, 2009, 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. We did not acquire any shares in 2009, but as part of these programs, we acquired
approximately 73,500 shares in 2008. At December 31, 2009, we held 9.6 million shares of our common stock as
treasury shares. At December 31, 2009, we had 506,000 shares remaining under our current share repurchase
authorization.
On January 23, 2009, under the U.S. Treasury’s Capital Purchase Plan (“CPP”), we issued and 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.
The Company completed a private placement of stock to Peninsula Investment Partners, L.P. (Peninsula)
on September 24, 2009, pursuant to which the company issued and sold 862,069 shares of common stock for a
total purchase price of $25.0 million, and a 10-year warrant to purchase 129,310 shares of the Company’s
common stock at an exercise price of $29.00 per share. Additional information concerning the Peninsula
transaction is included in Note 21 to the Consolidated Financial Statements.
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, 2009, 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
More than
5 Years
$
$
48,581 $
680,155
3,972
640,738
1,373,446 $
5,113 $
405,517
3,170
640,738
1,054,538 $
9,165 $
174,394
802
—
184,361 $
7,675 $
33,233
—
—
40,908 $
26,628
67,011
—
—
93,639
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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.
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 as a way for healthy U.S. financial
institutions to help stabilize the U.S. economy. 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. After careful consideration of
all the costs, restrictions, risks and benefits, we have elected to participate in the CPP program. The Treasury’s
investment signals their faith in us as a healthy institution that can help stabilize and eventually grow the
economy. Additional information regarding this transaction can be found in Note 21 to the Consolidated
Financial Statements.
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
-54-
coverage is 10 basis points per quarter on amounts in covered accounts exceeding $250,000. We have elected
to participate in the TLGP program.
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.
On November 12, 2009, the FDIC adopted a final ruling that required banks to prepay their estimated
quarterly risk-based assessments for the 4th quarter of 2009 and for all of 2010 through 2012. In addition the
FDIC board voted to adopt a uniform three-basis point increase in assessment rates effective January 1, 2011.
Prepayment of the assessments allowed the industry to strengthen the cash position of the Deposit Insurance
Fund (DIF) immediately while allowing the capital impact to be felt over time as the industry’s financial
condition improves. We have paid our estimated assessment for 2010 through 2012 of $19.9 million and will
expense this amount based on actual calculations of quarterly provisions during the period to which it relates.
On November 17, 2009, the Federal Reserve adopted a final ruling regarding Regulation E, otherwise
known as the Electronic Fund Transfer Act. The ruling limits our ability to assess fees for overdrafts on ATM
or one-time debit transactions without receiving prior consent from our customers who have opted-in to our
overdraft service. This act will become effective on July 1, 2010.
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 Consolidated 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 judgments 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.
The following are critical accounting policies that involve more significant judgments 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 judgment 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.
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.
-55-
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 judgment 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 Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 740, Income Taxes (“ASC 740”), 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
regularly assess the need for valuation allowances on deferred income tax assets that may result from, among
other things, limitations imposed by Internal Revenue Code and uncertainties, including the timing of
settlement and realization of these differences. No valuation allowance is required as of December 31, 2009.
Fair Value Measurements
We adopted FASB ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820”) during 2008,
which defines fair value, establishes a framework for measuring fair value under GAAP, and expands
disclosures about fair value measurements. See Note 1 to the Consolidated financial statements.
Goodwill and Other Intangible Assets
In accordance with FASB ASC 805, Business Combinations, and FASB ASC 350, Intangibles—
Goodwill and Other, all assets and liabilities acquired in purchase acquisitions, including goodwill, indefinite-
lived intangibles and other intangibles are recorded at fair value. We consider our accounting policies related
to goodwill and other intangible assets to be critical because the assumptions or judgment used in determining
the fair value of assets and liabilities acquired in past acquisitions are subjective and complex. As a result,
changes in these assumptions or judgment could have a significant impact on our financial condition or results
of operations.
The fair value of acquired assets and liabilities, including the resulting goodwill, was based either on
quoted market prices or provided by other third-party sources, when available. When third-party information
was not available, estimates were made in good faith by management primarily through the use of internal cash
flow modeling techniques. The assumptions that were used in the cash flow modeling were subjective and are
susceptible to significant changes.
Goodwill and other intangible assets with indefinite useful lives are tested for impairment at least
annually and written down and charged to results of operations only in periods in which the recorded value is
more than the estimated fair value. Intangible assets that have finite useful lives will continue to be amortized
over their useful lives and are periodically evaluated for impairment. As of December 31, 2009, goodwill
totaled $10.9 million, the majority of which is in the WSFS Bank reporting unit and is the result of a branch
acquisition in 2008. For additional information see Note 19 to the Consolidated financial statements. In
addition, amortizing intangibles totaled $2.8 million as of December 31, 2009.
Goodwill is tested for impairment using a two-step process that begins with an estimation of fair
value. The first step compares the estimated fair value of our reporting units with their carrying amounts,
including goodwill. If the estimated fair value exceeds its carrying amount, goodwill is not considered
impaired. However, if the carrying amount exceeds its estimated fair value, a second step would be performed
that would compare the implied fair value to the carrying amount of goodwill. An impairment loss would be
recorded to the extent that the carrying amount of goodwill exceeds its implied fair value.
-56-
Fair value may be determined using market prices, comparison to similar assets, market multiples,
discounted cash flow analysis and other variables. Estimated cash flows extend five years into the future and,
by their nature, are difficult to estimate over such an extended time-frame. Factors that may significantly affect
the estimates include, but are not limited to, balance sheet growth assumptions, credit losses in our investment
and loan portfolios, competitive pressures in our market area, changes in customer base and customer product
preferences, changes in revenue growth trends, cost structure, changes in discount rates, conditions in the
banking sector and general economic variables.
As of December 31, 2009, we retained a third-party valuation firm to assist in our Step 1 test for
potential goodwill impairment of the WSFS Bank reporting unit. The valuation incorporated both income and
market based analyses and indicated the fair value of our WSFS Bank reporting unit was 3.7% above the
carrying amount, therefore in accordance with FASB ASC 350-20-35-6; the Step 2 analysis was not required.
As of December 31, 2009, goodwill and other intangible assets were not considered impaired;
however, changing economic conditions that may adversely affect our performance and stock price could
result in impairment, which could adversely affect earnings in future.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2007, the FASB issued new guidance impacting FASB ASC 805, Business
Combinations (“ASC 805”), (Formerly SFAS No. 141 (revised 2007), Business Combinations). This new
guidance changes the requirements for an acquirer’s recognition and measurement of the assets acquired and
the liabilities assumed in a business combination, ASC 805 is effective for annual periods beginning after
December 15, 2008 and is applied prospectively for all business combinations entered into after the date of
adoption. The adoption of this statement did not have a material impact on our Consolidated Financial
Statements.
In December 2007, the FASB issued FASB ASC 810-10, Consolidation (“ASC 810-10”), (Formerly
SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB
No. 51). 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. ASC 810-10 is effective for annual periods
beginning after December 15, 2008 and is applied prospectively. However, the presentation and disclosure
requirements of the statement are applied retrospectively for all periods presented. The adoption of this
statement did not have a material impact on our Consolidated Financial Statements.
In March 2008, the FASB issued FASB ASC 815-10, Derivatives and Hedging (Formerly SFAS No.
161, Disclosure about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No.
133). 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. The adoption of this statement did not
have a material impact on our Consolidated Financial Statements.
In April 2009, the FASB issued new guidance and enhanced disclosures regarding fair value
measurements of impairment securities. This guidance is effective for periods ending after June 15, 2009, with
an early adoption election permitted. We elected early adoption in the quarter ended March 31, 2009 and have
determined the adoption did not have a material impact on our Consolidated Financial Statements:
FASB ASC 825-10-50, Financial Instruments (Formerly FSP FAS 107-1 and APB 28-1,
Interim Disclosures about Fair Value of Financial Instruments), changes the disclosure requirements of
any financial instrument not currently reflected on the balance sheet. Prior to issuing this guidance, fair
-57-
values for these financial instruments were only disclosed annually. Effective with adoption of this
guidance, the fair value of these instruments are required to be disclosed on an interim and annual basis.
FASB ASC 320-10, Investments (Formerly FSP FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairments), amends the guidance on other-than-temporary
impairment for debt securities and modifies the presentation and disclosure of other-than-temporary
impairments on debt and equity securities in the financial statements.
FASB ASC 820 (Formerly FSP FAS 157-4, Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions
That Are Not Orderly), provides additional guidance for estimating fair value under FASB ASC 820-10
(Formerly SFAS No. 157, Fair Value Measurements) when there is an inactive market or the market is
not orderly.
In May 2009, the FASB issued FASB ASC 855, Subsequent Events (Formerly SFAS No. 165,
Subsequent Events). This Statement incorporates guidance into accounting literature that was previously
addressed only in auditing standards. The statement refers to subsequent events that provide additional
evidence about conditions that existed at the balance-sheet date as “recognized subsequent events”. Subsequent
events which provide evidence about conditions that arose after the balance-sheet date but prior to the issuance
of the financial statements are referred to as “non-recognized subsequent events”. It also requires companies to
disclose the date through which subsequent events have been evaluated and whether this date is the date the
financial statements were issued or the date the financial statements were available to be issued. The adoption
of this statement did not have a material impact on our Consolidated Financial Statements. See Note 22, to the
Consolidated Financial Statements.
In June 2009 the FASB issued new guidance impacting FASB ASC 860, Transfers and Servicing
(“ASC 860”), (Formerly SFAS No. 166, Accounting for Transfers of Financial Assets—an amendment of
FASB Statement No. 140). This new standard amends derecognition guidance and eliminates the concept of
qualifying special-purpose entities. The new standard is effective for fiscal years and interim periods beginning
after November 15, 2009. Early adoption of ASC 860 is prohibited. We have not determined whether the
adoption of the new standard will have a material impact on our Consolidated Financial Statements.
In June 2009, the FASB issued new guidance impacting FASB ASC 810-10, Consolidation (Formerly
SFAS No. 167, Amendments to FASB Interpretation No. 46(R)). The new standard amends previous guidance
to replace the quantitative-based risks and rewards calculation for determining which enterprise, if any, has a
controlling financial interest in a variable interest entity with an approach focused on identifying which
enterprise has the power to direct the activities of a variable interest entity that most significantly impact the
entity’s economic performance and (i) the obligation to absorb losses of the entity or (ii) the right to receive
benefits from the entity. The pronouncement is effective January 1, 2010 and we have not determined whether
the adoption of the new standard will have a material impact on our Consolidated Financial Statements.
In June 2009 the FASB issued FASB ASC 105-10, Generally Accepted Accounting Principles
(Formerly SFAS No. 168, The FASB Accounting Standards CodificationTM and the Hierarchy of Generally
Accepted Accounting Principles—a replacement of FASB Statement No. 162). This new standard establishes
the FASB Accounting Standards CodificationTM as the source of authoritative U.S. generally accepted
accounting principles recognized by the FASB to be applied to nongovernmental entities. This new standard
was effective for financial statements issued for interim and annual periods ending after September 15, 2009 at
which time the Codification superseded all than-existing non-SEC accounting and reporting standards. The
adoption of this statement did not have a material impact on our Consolidated Financial Statements.
In August 2009, the FASB issued an update (Accounting Standards Update No. 2009-05, Measuring
Liabilities at Fair Value) impacting FASB ASC 820-10, Fair Value Measurements and Disclosures. The update
provides clarification about measuring liabilities at fair value in circumstances where a quoted price in an
active market for an identical liability is not available and the valuation techniques that should be used. The
update also clarifies that when estimating the fair value of a liability, a reporting entity is not required to
include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the
transfer of the liability. This update became effective for the Company for the reporting period ending
September 30, 2009 and did not have a material impact on the Company’s Consolidated Financial Statements.
-58-
In January 2010, the FASB issued an update (Accounting Standards Update No. 2010-06, Improving
Disclosures about Fair Value Measurements) impacting FASB ASC 820, Fair Value Measurements and
Disclosures. The update provides clarification regarding existing disclosures and requires additional
disclosures regarding fair value measurements. Specifically, the guidance now requires reporting entities to
disclose the amounts of significant transfers between levels and the reasons for the transfers. In addition, the
reconciliation should present separate information about purchases, sales, issuances and settlements. A
reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair
value. The new standard is effective for reporting periods beginning after December 15, 2009 except for
disclosures about purchases, sales, issuances and settlements which is not effective until reporting periods
beginning after December 15, 2010. Adoption of this guidance is not expected to have a material impact on
our Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The matching of maturities or repricing periods of interest rate-sensitive assets and liabilities to promote
a favorable interest rate spread and mitigate exposure to fluctuations in interest rates is our primary tool for
achieving our asset/liability management strategies. Management regularly reviews our interest-rate sensitivity
and adjusts the sensitivity within acceptable tolerance ranges established by management. At December 31, 2009
interest-earning liabilities exceeded interest-bearing assets that mature or reprice within one year (interest-
sensitive gap) by $73.9 million. Our interest-sensitive assets as a percentage of interest-sensitive liabilities within
the one-year window decreased from 100.6% at December 31, 2008 to 96.4% at December 31, 2009. Likewise,
the one-year interest-sensitive gap as a percentage of total assets changed to (1.97%) at December 31, 2009 from
0.3% at December 31, 2008. The change in sensitivity since December 31, 2008 is the result of the current
interest rate environment and our continuing effort to effectively manage interest rate 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, 2009 and 2008, 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)
2009
2008
% Change in
Net Interest
Margin (1)
+4%
+3%
+1%
0%
-7%
NMF
NMF
Net Portfolio
Value (2)
8.88%
9.24%
9.43%
9.39%
9.16%
NMF
NMF
% Change in
Net Interest
Margin (1)
-9%
-6%
-3%
0%
-2%
NMF
NMF
Net Portfolio
Value (2)
7.92%
8.17%
8.37%
8.50%
8.43%
NMF
NMF
(1) The percentage difference between net interest margin in a stable interest rate environment and net interest margin as projected under
the various rate change environments.
(2) The net portfolio value ratio of the Company in a stable interest rate environment and the net portfolio value as projected under the
various rate change environments.
(3) Sensitivity indicated by a decrease of 200 and 300 basis points is deemed not meaningful (NMF) at December 31, 2009 given the low
absolute level of interest rates at that time.
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.
-59-
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.
During the first quarter of 2010 we executed $75.0 million of intermediate-term FHLB Advances in
order to reduce the sensitivity of our net interest income to increases in market interest rates.
-60-
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 as of December 31, 2009 and 2008, 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, 2009. 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, 2009 and 2008, and
the results of their operations and their cash flows for each of the years in the three-year period ended
December 31, 2009, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company adopted FASB Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 (included
in FASB ASC Topic 740, Income Taxes), effective January 1, 2007, and FASB Statement No. 157, Fair Value
Measurements (included in FASB ASC Subtopic 820-10, Fair Value Measurements and Disclosures),
effective January 1, 2008.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), WSFS Financial Corporation’s internal control over financial reporting as of December 31,
2009, 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, 2010
expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
Philadelphia, Pennsylvania
March 16, 2010
-61-
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:
Deposit service charges
Credit/debit card and ATM income
Loan fee income
Securities gains
Investment advisory income
Mortgage banking activities, net
Bank-owned life insurance income
Non-recurring gains, net
Other income
Noninterest expenses:
Salaries, benefits and other compensation
Occupancy expense
Professional fees
FDIC expenses
Equipment expense
Data processing and operations expense
Net costs of assets acquired through foreclosure
Marketing expense
Other operating expenses
2009
2008
2007
$
128,248 $
28,560
1,386
(464)
—
157,730
140,661 $
23,984
1,331
(1,077)
1,578
166,477
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
82
2,465
217
2,269
1,979
3,601
48,166
43,662
8,280
2,662
208
5,616
4,062
22
3,911
13,608
82,031
43,123
13,474
29,649
—
29,649
30,389
18,306
1,531
1,797
1,063
53,086
104,644
47,811
56,833
16,881
16,522
4,857
3,423
2,162
1,646
917
—
3,833
50,241
39,809
29,620
2,397
3,275
2,157
77,258
89,219
23,024
66,195
16,484
17,229
3,696
139
2,395
148
1,786
—
4,112
45,989
48,133
9,664
7,074
7,064
6,803
4,743
4,310
3,304
17,409
108,504
(1,430)
(2,093)
663
2,590
(1,927) $
46,654
8,416
4,082
661
6,174
4,216
968
3,920
14,007
89,098
23,086
6,950
16,136
—
16,136 $
(0.30) $
(0.30) $
2.62 $
2.57 $
4.69
4.55
(Loss) income before taxes
Income tax (benefit) provision
Net income
Dividends on preferred stock and accretion of discount
Net (loss) income allocable to common stockholders
Earnings per share:
Basic
Diluted
$
$
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
-62-
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: 2009-$671; 2008-$1,071)
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 $53,446 at December 31, 2009
and $31,189 at December 31, 2008
Bank-owned life insurance
Stock in Federal Home Loan Bank of Pittsburgh, at cost
Assets acquired through foreclosure
Premises and equipment
Goodwill
Intangible assets
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
Stockholders’ Equity:
Serial preferred stock $.01 par value, 7,500,000 shares authorized;
issued 52,625 at December 31, 2009 and -0- at December 31, 2008
Common stock $.01 par value, 20,000,000 shares authorized; issued 16,660,588
at December 31, 2009 and 15,739,768 at December 31, 2008
Capital in excess of par value
Accumulated other comprehensive loss
Retained earnings
Treasury stock at cost, 9,580,569 shares at December 31, 2009
and December 31, 2008
Total stockholders’ equity
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these Consolidated Financial Statements.
-63-
$
$
$
2009
2008
55,756
264,903
—
1,090
321,749
709
44,808
669,059
12,183
8,366
2,470,789
60,254
39,305
8,945
36,108
10,870
2,781
62,581
3,748,507
431,476
265,719
550,639
224,921
470,139
203,126
2,146,020
69,208
346,643
2,561,871
100,000
613,144
67,011
74,654
30,027
3,446,707
$
$
$
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
11,849
3,867
38,479
3,432,560
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
3,215,925
1
—
166
166,627
(2,022)
385,308
157
87,033
(12,613)
390,338
(248,280)
301,800
3,748,507
$
(248,280)
216,635
3,432,560
$
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Preferred
Stock
Common
Stock
Capital in
Excess of
Par Value
Accumulated
Other
Comprehensive
Loss
Retained
Earnings
Treasury
Stock
Total
Stockholders’
Equity
(In Thousands)
Balance, December 31, 2006
$
— $
156
$
81,580 $
(8,573) $ 347,448 $
(208,552 )
$
212,059
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
Comprehensive income:
Net income
Other comprehensive income (1)
Total comprehensive income
Cash dividend, $0.48 per share
Issuance of common stock,
including proceeds from
exercise of
common stock options
Issuance of restricted stock
Reclassification adjustment of
negative minority interest
Tax benefit from exercises of
common stock options
Preferred stock cash dividends
Preferred stock discount
accretion
Preferred stock and common
stock warrants issued
Balance, December 31, 2009
$
—
— $
—
157
$
(2,437)
83,077 $
—
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
—
3,704
—
230
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,391
—
202
—
$
—
— $
—
157
$
1,363
87,033 $
—
—
—
—
—
—
—
—
—
—
—
—
9
—
—
—
—
—
—
—
—
25,109
174
—
80
—
127
—
4,712
29,649
—
—
—
—
—
—
—
1,988
(2,403)
—
—
—
—
(3,861) $ 376,682 $
—
(8,752)
16,136
—
—
(2,832)
—
—
—
—
—
—
—
—
352
—
(12,613) $ 390,338 $
—
10,591
663
—
—
(3,078)
—
—
—
—
—
—
—
—
(352)
—
(2,136)
(127)
—
$385,308
—
—
—
—
—
(36,173 )
—
—
(244,725 )
$
—
—
—
—
(3,555 )
—
—
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
352
—
(248,280 )
1,363
216,635
$
—
—
—
—
—
—
—
—
—
663
10,591
11,254
(3,078)
25,118
174
(352)
80
(2,136)
—
—
$ (248,280 )
54,105
301,800
$
1
$
1 $
—
166
54,104
$ 166,627
$
—
(2,022)
-64-
(1) Other Comprehensive Income (Loss):
2009
2008
2007
Net unrealized holding gains (losses) on securities available-for-sale arising during the
period, net of taxes (2009 - $6,491; 2008 - $(5,364); 2007 - $2,855);
Actuarial gain reclassified to periodic cost, net of income taxes (2007 - $42);
Transition obligation reclassified to periodic cost, net of income taxes (2007 - $23);
Reclassification for losses (gains) included in income,
net of taxes (2009 - $(768); 2007 - $(31));
Total other comprehensive (loss) income
$
11,845 $
—
—
(8,752) $
—
—
4,657
68
38
(1,254 )
10,591 $
—
(8,752) $
(51)
4,712
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
-65-
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
2009
2008
2007
$
663 $
16,136 $
29,649
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
(Income) loss on mark to market adjustment on trading securities
Gain on sale of credit card portfolio
Securities gain from the sale of MasterCard, Inc. and Visa, Inc. common stock
Gain on sale of former headquarters building
Gain on sale of investments
Stock-based compensation expense, net of tax benefit recognized
Excess tax (benefits) liability from share-based payment arrangements
Increase (decrease) in accrued interest payable and other liabilities
Loss on wind down of 1st Reverse
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
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, LLC
Acquisition of branches
Sales of loans
Purchase of Cypress Capital Management, LLC
Purchase of ATM vault cash business
Purchases of loans
Net increase in loans
Net decrease (increase) in stock of Federal Home Loan Bank of Pittsburgh
Sale of assets acquired through foreclosure, net
Sale of credit card portfolio
Proceeds from the sale of MasterCard, Inc. and Visa, Inc. common stock
Sale of former headquarters building
Deferred gain on sale of partnership interest
Investment in real estate partnership
Investment in premises and equipment, net
Net cash used for investing activities
47,811
6,953
(31,217 )
(115,196 )
110,731
(1,646 )
(1,368 )
—
(119 )
—
(2,022 )
874
(80 )
3,188
1,857
1,905
(917 )
464
21,881
22,591
(19,070 )
111,214
151,571
(424,813 )
207
(202 )
—
—
22,270
—
—
—
(109,261 )
—
3,274
—
119
—
—
—
(6,776 )
(248,876 )
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 )
(Continued on next page)
-66-
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
Receipts from federal funds purchased and securities sold under agreement to
$
repurchase
Repayments of federal funds purchased and securities sold under agreement to
repurchase
Receipts of FHLB advances
Repayments of FHLB advances
Proceeds from issuance of unsecured bank debt
Dividends paid
Proceeds from issuance of preferred 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
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
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
The accompanying notes are an integral part of these Consolidated Financial Statements.
$
$
2009
2008
2007
347,401 $
27,126
112,850 $
195,584
82,363
4,256
18,922,995
12,853,000
12,709,000
(18,897,995 )
30,481,564
(30,684,378 )
30,000
(5,214 )
52,625
25,982
80
—
—
300,186
73,191
248,558
321,749 $
(12,853,000 )
82,778,987
(82,861,310 )
—
(2,832 )
—
1,863
1,363
(3,555 )
—
222,950
(18,979 )
267,537
248,558 $
(12,707,400 )
31,427,417
(31,313,165 )
—
(2,404 )
—
2,713
(2,437 )
(36,173 )
(54 )
164,116
25,713
241,824
267,537
55,640 $
2,593
9,143
10,591
80,654 $
10,521
6,186
(8,752 )
105,969
18,056
415
4,712
-67-
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
savings and loan 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, 2009, serves customers from our 41
banking offices located in Delaware (36), Pennsylvania (4), and Virginia (1).
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), goodwill 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 2010, 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. (“WIG”). WIG markets various
third-party insurance and securities products to Bank customers through WSFS’ retail banking system. During
2009, WSFS Bank also owned a majority interest in 1st Reverse Financial Services, LLC (1st Reverse),
specializing in reverse mortgage lending however operations were wound-down during the 4th quarter of 2009
due, in part, to the current economic climate. Montchanin was formed to provide asset management products and
services. In 2007, Montchanin increased its ownership in Cypress, a Wilmington-based investment advisory firm
servicing high net-worth individuals and institutions to100%.
WSFS Capital Trust III (“the Trust”) is an unconsolidated subsidiary 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 Company.
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.
- 68 -
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:
o Debt securities with the positive intention to hold to maturity are classified as “held-to-
maturity” and reported at amortized cost.
o 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.
o 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.
When we conclude an investment security is other-than-temporarily impaired (“OTTI”), a loss for the
difference between the investment security’s carrying value and the fair value is recognized as a reduction to
non-interest income in the consolidated statement of operations. For an investment in a debt security, if we do
not intend to sell the investment security and conclude that it is not more likely than not we will be required to
sell the security before recovering the carrying value, which may be maturity, the OTTI charge is separated
into the “credit” and “other” components. The “other” component of the OTTI is included in other
comprehensive loss, net of the tax effect, and the “credit” component of the OTTI is included as a reduction to
non-interest income in the consolidated statement of operations. Management is required to use its judgment 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 2009, we recorded
a $464,000 charge (taken through interest income) related to our second-lien interest in the 18 whole-loan
reverse mortgage.
During 2009 we recorded income of $1.4 million related to the mark-to-market adjustment on the
$12.4 million par value BBB+ rated mortgage-backed security (MBS) issued in connection with a 2002 reverse
mortgage securitization.
- 69 -
Loans
Loans are stated net of deferred fees and costs and unearned discounts. Interest income on loans is
recognized using the level yield method. 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.
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. 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
collectability 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 judgment 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. Troubled debt restructurings are measured at the present value of estimated future
cash flows using the loan’s effective rate at inception.
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 adjusted to reflect current estimates of loss. 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.
- 70 -
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 adjusted to reflect current estimates of loss. 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.
Historical loss adjustment factors are based upon management’s evaluation of various current conditions,
including those listed below:
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
(cid:2)
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.
During 2009, we recorded a $47.8 million provision for loan losses, which was a result of many factors
including increased charge-offs, continued migration in loans to lower credit grades, continued deterioration of
collateral values and an increase in estimated disposition costs.
Increases in the allowance for loan losses in both 2009 and 2008 were also due to rising trends in our
past due and nonperforming loans (as discussed in the earlier nonperforming assets section) and rising
unemployment rates. This increase in non-performing loans is a direct result of the weak economic
environment, impacting numerous borrowers’ ability to pay as scheduled. This has resulted in increased loan
delinquencies, and in some cases decreases in the collateral value used to secure real estate loans and the
ability to sell the collateral upon foreclosure. Collateral value is assessed based on collateral value trends,
liquidation value trends, and other liquidation expenses to determine appropriate discounts that may be
needed. In response to this deterioration in real estate loan quality, management is aggressively monitoring its
classified loans and is continuing to monitor credits with material weaknesses.
As a result of continued economic deterioration, a detailed review and analysis of our commercial loan
portfolio was completed during the year. This included a review of every commercial loan commitment
greater than $1 million, regardless of risk rating. This represented 74% of our commercial portfolio. The
review considered cash flows from the business or project, appropriately conservative real estate values, a
careful view of guarantor support, and the direction of the economy.
Our real estate portfolio has approximately $524.4 million of commercial real estate loans, $231.6
million of construction loans, $357.3 million in first lien mortgage loans (only $15.5 million of which are
- 71 -
considered subprime loans), and $284.3 million in home equity loans and lines as of December 31, 2009. We
do not have any option ARM products in our portfolio. We consider our construction loans our riskiest loans
within our real estate portfolio. Construction loans are typically comprised of loans to borrowers for real estate
to be developed. Normally, these loans are repaid with the proceeds from the sale or lease of the developed
property. The greater degree of strain on these real estate types of loans and the significance to our overall
loan portfolio has caused us to apply a greater degree of scrutiny in analyzing the ultimate collectability of
amounts due. A number of these borrowers are having financial difficulties that may affect their ability to
repay their loans.
Assets Held-for-Sale
Assets held-for-sale includes 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. We write-down the value of the
assets 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 2009, we booked
$4.1 million in additional write-downs of values of assets acquired through foreclosure (REO).
Premises and Equipment
Premises and equipment is 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 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 judgment reflecting management’s best estimate of probable losses related to standby letters of credit.
During 2009 we increased these reserves by $532,000.
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.
- 72 -
We account for income taxes in accordance with Financial Accounting Standard Board (“FASB”)
Accounting Standards Codification (“ASC”) 740, Income Taxes (formerly Statement of Financial Accounting
Standards (“SFAS”) No. 109, Accounting for Income Taxes and FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement 109). ASC 740 prescribes a recognition
threshold and a measurement attribute for the financial statement recognition and measurement of tax positions
taken or expected to be taken in a tax return. Benefits from tax positions are recognized in the financial
statements only when it is more-likely-than-not that the tax position will be sustained upon examination by the
appropriate taxing authority that would have full knowledge of all relevant information. A tax position that
meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater
than 50% likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the
more-likely-than-not recognition threshold are recognized in the first subsequent financial reporting period in
which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not
recognition threshold are derecognized in the first subsequent financial reporting period in which that threshold
is no longer met. ASC 740 also provides guidance on the accounting for and disclosure of unrecognized tax
benefits, interest and penalties. ASC 740 became effective for us on January 1, 2007, and resulted in a $2.0
million increase to our retained earnings on that date.
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
2007
2008
2009
(In Thousands, Except Per Share
Data)
Numerator:
Net (loss) income allocable to common shareholders
$
(1,927 ) $
16,136 $
29,649
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
6,429
(cid:2)
6,158
132
6,316
194
6,429
6,290
6,510
Earnings per share:
Basic:
Net (loss) income allocable to common shareholders
$
(0.30 ) $
2.62 $
4.69
Diluted:
Net (loss) income allocable to common shareholders
$
(0.30 ) $
2.57 $
4.55
Outstanding common stock equivalents having no dilutive effect
939
371
194
For the year ended December 31, 2009, 939,000 employee stock options were excluded from the
computation of diluted net loss per common share, of which 59,000 were because the effect would have been
antidilutive due to the net loss reported in this period.
Fair Value of Financial Assets
Effective January 1, 2008, we adopted the provisions of FASB ASC 820-10 (Formerly SFAS No. 157,
Fair Value Measurements and Financial Accounting Standards Board Staff Position (FSP) No. 157-2, Effective
Date of FASB Statement No. 157), for nonfinancial assets and financial liabilities. This adoption did not have a
material impact on our financial statements.
- 73 -
ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. ASC 820-10
establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the
following three levels:
Level 1:
Level 2:
Level 3:
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.
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, 2009 (there
are no material liabilities measured at fair value):
Quoted
Prices in
Active
Markets for
Identical
Asset
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Fair Value
Description
Assets Measured at Fair Value on a Recurring
Basis
Available-for-sale securities including reverse
(in Thousands)
mortgages
Trading Securities
$
— $
—
714,397 $
—
(530) $
12,183
713,867
12,183
Total assets measured at fair value on a
recurring basis
$
— $
714,397 $
11,653 $
726,050
Assets Measured at Fair Value on a
Nonrecurring Basis
Impaired Loans
Total assets measured at fair value on a
nonrecurring basis
$
$
— $
61,375 $
— $
61,375
— $
61,375 $
— $
61,375
- 74 -
The table below presents the balances of assets measured at fair value as of December 31, 2008 (there
were no material liabilities measured at fair value):
Quoted
Prices in
Active
Markets for
Identical
Asset
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Fair Value
Description
Assets Measured at Fair Value on a Recurring
Basis
Available-for-sale securities including reverse
(in Thousands)
mortgages
Trading Securities
$
— $
—
535,957 $
—
(61) $
10,816
535,896
10,816
Total assets measured at fair value on a
recurring basis
$
— $
535,957 $
10,755 $
546,712
Assets Measured at Fair Value on a
Nonrecurring Basis
Impaired Loans
Total assets measured at fair value on a
nonrecurring basis
$
$
— $
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. As of December 31, 2009, securities classified as available for sale are
reported at fair value using Level 2 inputs. Included in the Level 2 total are approximately $41.3 million in
Federal Agency debentures, $240.2 million in Federal Agency MBS, $424.8 million of Private Label MBS,
and $3.7 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 ASC 820-10 as, with almost all fixed
income securities, none are exchange traded, and all are priced by correlation to observed market data. For
these securities we obtain fair value measurements from an independent pricing service. The fair value
measurements consider observable data that may include dealer quotes, market spreads, cash flows, U.S.
government and agency yield curves, live trading levels, trade execution data, market consensus prepayment
speeds, credit information, and the security’s terms and conditions, among other factors.
Securities classified as available for sale as of December 31, 2008 were also reported at fair value
using Level 2 inputs. Included under the Level 2 designation was 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 were predominately AAA-rated and designated
- 75 -
Level 2 pursuant to ASC 820-10. As discussed above, almost all were fixed income securities, none were
exchange traded, and all were priced by correlation to observed market data.
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 ASC 820-10. As prescribed by ASC
820-10, 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.
Reverse Mortgages available-for-sale. The amount of our investment in reverse mortgages represents
the estimated value of future cash flows of the reverse mortgages at a rate deemed appropriate for these
mortgages, based on the market rate for similar collateral. The projected cash flows depend on assumptions
about life expectancy of the mortgagee and the future changes in collateral values. Due to the significant
amount of management judgment and the unobservable input calculations, these reverse mortgages have been
classified as Level 3.
The changes in Level 3 assets measured at fair value are summarized as follows:
Trading
Securities
Available-
For-Sale
Securities
Including
Reverse
Mortgages
(in Thousands)
Total
Balance at December 31, 2007
Total net income (losses) for the period included in net
income
Purchases, sales, issuances, and settlements, net
Balance at December 31, 2008
Total net income (losses) for the period included in net
income
Purchases, sales, issuances, and settlements, net
Balance at December 31, 2009
$
$
$
12,364
(1,548 )
—
10,816
1,367
—
12,183
$
$
$
2,037
(1,077 )
(1,021 )
(61 )
(464 )
$ 14,401
(2,625 )
(1,021 )
$ 10,755
903
(5 )
(530 )
(5 )
$ 11,653
Impaired loans. Impaired loans, which are measured for impairment using the fair value of the
collateral for collateral dependent loans, had a gross amount of $73.2 million and $22.8 million at December
31, 2009 and 2008, respectively. The valuation allowance on impaired loans was $11.8 million as of December
31, 2009 and $395,000 as of December 31, 2008.
- 76 -
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, 2009:
Reverse mortgages (1)
U.S. Government and agencies
State and political subdivisions
December 31, 2008:
Reverse mortgages (1)
U.S. Government and agencies
State and political subdivisions
Held-to-maturity:
December 31, 2009:
State and political subdivisions
December 31, 2008:
State and political subdivisions
$
$
$
$
$
$
$
$
(530) $
40,695
3,935
44,100 $
(61) $
43,778
4,020
47,737 $
— $
652
91
743 $
— $
857
—
857 $
— $
(35 )
—
(35 ) $
(530)
41,312
4,026
44,808
— $
(1 )
(86 )
(87 ) $
(61)
44,634
3,934
48,507
709 $
709 $
1,181 $
1,181 $
— $
— $
— $
— $
(38 ) $
(38 ) $
671
671
(110 ) $
(110 ) $
1,071
1,071
(1) See Note 4 to the Consolidated Financial Statements for a further discussion of Reverse Mortgages.
Securities with book values aggregating $39.5 million at December 31, 2009 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 $352,000 and $409,000 at December 31, 2009 and 2008,
respectively.
- 77 -
The scheduled maturities of investment securities held-to-maturity and securities available-for-sale at
December 31, 2009 and 2008 were as follows:
2009
Within one year (1)
After one year but within five years
After five years but within ten years
After ten years
2008
Within one year (1)
After one year but within five years
After five years but within ten years
After ten years
Held-to-Maturity
Available-for Sale
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
(In Thousands)
$
$
$
$
340 $
—
—
369
709 $
— $
630
—
551
1,181 $
340 $
—
—
331
671 $
— $
630
—
441
1,071 $
10,864 $
32,986
250
—
44,100 $
3,940 $
42,522
1,275
—
47,737 $
11,068
33,485
255
—
44,808
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 or held-to-maturity during
2009, 2008, or 2007. As a result, there were no net gains/losses realized during 2009, 2008, or 2007. The cost
basis for investment security sales is based on the specific identification method. Investment securities totaling
$18.6 million were called by their issuers during 2009.
At December 31, 2009, we owned investment securities totaling $3.2 million where the amortized cost
basis exceeded fair value. Total unrealized losses on those securities were $73,000 at December 31, 2009. This
temporary impairment is the result of changes in market interest rates subsequent to the purchase of the
securities. Securities amounting to $242,000 have been impaired for 12 months or longer. We have determined
that these securities are not other than temporarily impaired. The following table includes unrealized losses
aggregated by category as of December 31, 2009:
Held-to-maturity
State and political subdivisions
Available-for-sale
State and political subdivisions
U.S Government and agencies
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
(In Thousands)
$
— $
— $
242 $
38 $
242 $
38
—
2,985
—
35
—
—
—
—
—
2,985
—
35
73
Total temporarily impaired investments
$
2,985 $
35 $
242 $
38 $
3,227 $
- 78 -
The following table includes unrealized losses aggregated by category as of December 31, 2008:
Held-to-maturity
State and political subdivisions
Available-for-sale
State and political subdivisions
U.S Government and agencies
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
(In Thousands)
$
92 $
— $
265 $
110 $
357 $
110
3,934
2,053
86
1
—
—
—
—
3,934
2,053
86
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:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
(In Thousands)
Fair
Value
Available-for-sale securities:
December 31, 2009:
Collateralized mortgage obligations (1)
$
FNMA
FHLMC
GNMA
$
Weighted average yield
December 31, 2008:
Collateralized mortgage obligations (1)
$
FNMA
FHLMC
GNMA
$
Weighted average yield
(1) Includes Agency CMO’s classified as available-for-sale.
519,527 $
61,603
44,536
46,629
672,295 $
5.00 %
419,177 $
35,578
30,477
22,536
507,768 $
4.97 %
5,368 $
813
561
1,129
7,871 $
(10,383 ) $
(454 )
(83 )
(187 )
(11,107 ) $
514,512
61,962
45,014
47,571
669,059
2,595 $
932
830
992
5,349 $
(25,728 ) $
—
—
—
(25,728 ) $
396,044
36,510
31,307
23,528
487,389
- 79 -
Trading securities:
December 31, 2009:
Collateralized mortgage obligations
Weighted average yield
December 31, 2008:
Collateralized mortgage obligations
$
$
$
$
12,183 $
12,183 $
— $
— $
— $
— $
12,183
12,183
3.74 %
10,816 $
10,816 $
— $
— $
— $
— $
10,816
10,816
Weighted average yield
6.02 %
The portfolio of available-for-sale mortgage-backed securities consists of both Agency and non-Agency
bonds. All bonds (except the BBB+ rated trading securities) were AAA-rated at the time of purchase; $97.6
million are now rated below AAA-. Downgraded bonds were evaluated at December 31, 2009. The result of this
evaluation shows only one bond with other-than-temporary impairment as of December 31, 2009, which resulted
in an earnings charge of $86,000 or 9 basis points of downgraded bonds and only 1 basis point of the total MBS
portfolio. The weighted average duration of the mortgage-backed securities was 2.4 years at December 31, 2009.
At December 31, 2009, mortgage-backed securities with market values aggregating $250.3 million were
pledged as collateral for customer repurchase agreements and municipal deposits. Accrued interest receivable
relating to mortgage-backed securities was $2.8 million and $2.1 million at both December 31, 2009 and 2008,
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, 2009 and
2008 was $122.7 million and $16.0 million, respectively. In 2009, proceeds from the sale of mortgage-backed
securities available-for-sale were $111.2 million, resulting in a gain of $2.0 million. There were no sales of
mortgage-backed securities available-for-sale in 2008. 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, of
which, $1.4 million is accrued interest paid in kind. Based on FASB ASC 320, Investments – Debt and Equity
Securities (“ASC 320”) (Formerly SFAS No. 115, Accounting for Certain Investments in Debt and Equity
Securities) when these securities were acquired they were classified as trading. It was our intent to sell them in
the near term. We have used the guidance under ASC 320 to provide a reasonable estimate of fair value in 2009.
We estimated the value of these securities as of December 31, 2009 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.
As a result of these mark-to-market adjustments, we recognized $1.4 million of securities gains and $1.6 million
of securities losses during 2009 and 2008, respectively. There was no mark-to-market adjustments recorded
during 2007.
At December 31, 2009, we owned mortgage-backed securities totaling $298.7 million where the
amortized cost basis exceeded fair value. Total unrealized losses on these securities were $11.1 million at
December 31, 2009. This temporary impairment is the result of changes in market interest rates, a lack of
liquidity in the private-label mortgage-backed securities market and the reduction in credit ratings of 28 bonds out
of 175 private-label bonds we own. Most of these securities have been impaired for less than twelve months. We
have determined that all except one of these securities are not other-than-temporarily impaired. Quarterly, we
evaluate the current characteristics of each of our mortgage-backed securities such as delinquency and foreclosure
levels, credit enhancement, projected losses and coverage. In addition, we do not have the intent to sell, nor is it
more likely than not we will be required to sell these securities before we are able to recover the amortized cost
basis.
- 80 -
The table below shows our mortgage-backed securities’ gross unrealized losses and fair value by investment
category and length of time that individual securities have been in a continuous unrealized loss position at
December 31, 2009. We have reviewed individual securities to determine whether a decline in fair value
below the amortized cost basis is other-than-temporary.
Available-for-sale
CMO
FNMA
FHLMC
GNMA
Less than 12 months
Fair
Value
Unrealized
Loss
12 months or longer
Fair
Value
Unrealized
Loss
Total
Fair
Value
Unrealized
Loss
(In Thousands)
$
115,088 $
29,360
25,434
19,953
2,701 $
454
83
187
108,839 $
—
—
—
7,682 $
—
—
—
223,927 $
29,360
25,434
19,953
10,383
454
83
187
Total temporarily impaired MBS
$
189,835 $
3,425 $
108,839 $
7,682 $
298,674 $
11,107
The table below shows our mortgage-backed securities’ gross unrealized losses and fair value by
investment category and length of time that individual securities were in a continuous unrealized loss position at
December 31, 2008:
Available-for-sale
CMO
FNMA
FHLMC
GNMA
Less than 12 months
Fair
Value
Unrealized
Loss
12 months or longer
Fair
Value
Unrealized
Loss
Total
Fair
Value
Unrealized
Loss
(In Thousands)
$
249,118 $
—
—
—
23,536 $
—
—
—
37,298 $
—
—
—
2,192 $
—
—
—
286,416 $
—
—
—
25,728
—
—
—
Total temporarily impaired MBS
$
249,118 $
23,536 $
37,298 $
2,192 $
286,416 $
25,728
At December 31, 2009, we owned one $2.6 million mortgage-backed security where the amortized cost
exceeded fair value and we recognized other-than-temporary impairment. The total loss on this bond was
$187,000 at December 31, 2009. Of this loss, $86,000 was related to credit impairment and $101,000 was related
to market interest rates and/or lack of liquidity in the market for mortgage-backed securities. As a result, we
realized an earnings charge of $86,000 for other-than-temporary impairment during 2009. There was no other-
than-temporary impairment recognized in any prior years.
4. REVERSE MORTGAGES AND RELATED ASSETS
We hold an investment in reverse mortgages of $(530,000) at December 31, 2009 representing a
participation in 18 reverse mortgages with a third party. These loans 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
- 81 -
year ended December 31, 2009, the Company lost $464,000 in interest income on reverse mortgages as compared
to a loss of $1.1 million in 2008 and posting income of $2.0 million in 2007. The losses in 2008 and 2009
primarily resulted from the decrease in the values of the properties securing these mortgages, based on annual re-
evaluation and consistent with the decrease in home values over the past two years.
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 0.0% 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 $19,000.
Conversely, if the long-term appreciation rate was decreased to -0.5%, the resulting impact on income would
have been $(17,000). If housing values do not change (0.0% annual appreciation for all future years), the
resulting impact on income would be $(8,000).
We also hold $12.2 million fair value 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 or later.
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 to purchase the Class “O” Certificates does not meet the
definition of a derivative under ASU 815, Derivatives and Hedging (formerly SFAS No. 161, Disclosure about
Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133). This certificate is
an equity security with no readily determinable fair value; as such, it is excluded from the accounting treatment
promulgated under ASU 320, Investments—Debt and Equity Securities (formerly 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. During 2009 we filed a “Proof of Claim” against Lehman Brothers Holding, Inc. regarding the
option on the Class “O” Certificates. Also during 2009 we notified Lehman Brothers Holding, Inc. that we
were exercising our option on these securities. The status of this exercise is pending.
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
2009
2008
$
$
348,873
524,380
231,625
1,120,807
300,648
2,526,333
2,098
53,446
2,470,789
$
422,740
558,979
251,508
942,920
296,728
2,472,875
126
31,189
2,441,560
$
- 82 -
Nonaccruing loans aggregated $65.9 million, $28.4 million and $31.8 million at December 31, 2009,
2008 and 2007, respectively. If interest on all such loans had been recorded in accordance with contractual
terms, net interest income would have increased by $2.6 million in 2009, $2.0 million in 2008, and $790,000 in
2007. Portfolio delinquency is actually less than nonperforming assets at December 31, 2009 as two large
credits, that have been current, were moved to nonaccrual status in the second quarter of 2009.
The total amount of loans serviced for others were $256.7 million, $268.8 million and $255.0 million
at December 31, 2009, 2008 and 2007, respectively all of which were residential first mortgage loans. We
received fees from the servicing of loans of $570,000, $650,000 and $718,000 during 2009, 2008 and 2007,
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 $349,000 and $329,000 at December 31, 2009 and
2008, 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 net revenue
of $20,000 during 2009 and net expense of $259,000 in 2008. The increase from the prior year was mainly due
to an increase in prepayment speeds during 2008 and the resulting impairment charge. 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 $7.6 million and $7.5 million at December 31,
2009 and 2008, respectively.
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
2009
2008
2007
$ 31,189
47,811
(26,566)
1,012
$ 53,446
$ 25,252
23,024
(17,839 )
752
$ 31,189
$ 27,384
5,021
(8,049)
896
$ 25,252
(1) 2009, 2008 and 2007 include $1.2 million, $1.3 million and $1.4 million of overdraft charge-offs, respectively.
(2) 2009, 2008 and 2007 include $380,000, $384,000 and $446,000 of overdraft recoveries, respectively.
Net charge-offs increased this year as we moved loans through the resolution process in some of the
larger construction loans we identified earlier in this cycle. During 2009, net charge-offs increased to $25.6
million, or 1.01%, of average loans annualized, from $17.1 million, or 0.74%, of average loans in 2008. This
is due to the fact we provide for losses earlier in the problem loan identification process when they are
probable and charge the loans off and utilize the provision when the losses are certain or near certain.
6. IMPAIRED LOANS
Loans from which it is probable we will not collect all principal and interest due according to contractual
terms are measured for impairment in accordance with the provisions of FASB ASC 310, Receivables (Formerly
SFAS No. 114, Accounting for Creditors for Impairment of a Loan). The amount of impairment is required to be
measured using one of three methods: (1) the present value of expected future cash flows discounted at the
loan’s effective interest rate; (2) the loan’s observable market price; or (3) the fair value of collateral if the loan
is collateral dependent. If the measure of the impaired loan is less than the recorded investment in the loan, a
specific allowance is allocated for the impairment.
We had impaired loans of approximately $73.2 million at December 31, 2009 compared to $31.3 million
at December 31, 2008. The average recorded balance of aggregate impaired loans was $62.2 million for the year-
ended December 31, 2009 and $26.1 million for the year-ended December 31, 2008. The specific allowance for
losses on these impaired loans was $11.8 million at December 31, 2009 compared to $395,000 at December 31,
- 83 -
2008. The change in the specific allowance was due to additional provision for loan loss of $12.9 million and net
transfers of $3.9 million from general valuation allowances. These increases were partially offset by $5.4 million
of charge-offs and transfers to assets acquired through foreclosure during 2009.
When there is little prospect of collecting principal or interest, loans, or portions of loans, may be
charged-off to the allowance for loan losses. Losses are recognized in the period when an obligation becomes
uncollectible.
7. PREMISES AND EQUIPMENT
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
2009
2008
$
4,422
10,900
26,089
32,444
73,855
37,747
36,108
$
$
$
4,422
10,797
22,990
29,892
68,101
33,135
34,966
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 estimated useful life. In
general, computer equipment, furniture and equipment and building renovations are depreciated over three, five
and ten years, respectively.
The Company occupies certain premises including some with renewal options, and operates certain
equipment under noncancelable leases with terms ranging primarily from 1 to 25 years. These leases are
accounted for as operating leases. Accordingly, lease costs are expensed as incurred in accordance with FASB
ASC 840-20 Operating Leases. Rent expense was $5.9 million in 2009, $5.0 million in 2008 and $4.5 million in
2007. Future minimum payments under these leases at December 31, 2009 are as follows:
(In Thousands)
2010
2011
2012
2013
2014
Thereafter
Total future minimum lease payments
8. DEPOSITS
$
$
5,113
4,841
4,324
3,949
3,726
26,628
48,581
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
2009
2008
$
$
431,476
265,719
550,639
1,247,834
311,322
214,749
326,792
852,863
- 84 -
Savings
224,921
208,368
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 customer deposits
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
292,884
129,144
43,622
2,580
1,909
470,139
137,492
46,883
18,426
161
164
203,126
2,146,020
69,208
—
—
—
—
69,208
346,643
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
103,825
—
—
—
—
103,825
311,394
Total deposits
$
2,561,871
$
2,122,352
Customer deposits increased $438.9 million, or 26%, over balances at December 31, 2008. The
growth was across all categories.
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
$
2009
2008
2007
648
4,857
521
19,789
25,815
1,845
2,729
30,389
$
$
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
- 85 -
9. BORROWED FUNDS
The following is a summary of borrowed funds by type:
Balance at
End of
Period
Weighted
Average
Interest
Rate
Maximum
Outstanding
at Month
End
During the
Period
Average
Amount
Outstanding
During the
Period
Weighted
Average
Interest
Rate
During the
Period
(Dollars in Thousands)
$ 613,144
67,011
2.59% $
2.03
738,639 $
67,011
642,496
67,011
2.81%
2.64
100,000
74,654
1.50
1.21
100,000
132,604
101,019
105,616
1.49
1.01
$ 815,957
67,011
2.74% $
3.97
942,922 $
67,011
841,005
67,011
3.46%
4.81
75,000
108,777
1.87
0.79
99,999
127,556
75,844
110,237
3.11
1.96
2009
FHLB advances
Trust preferred borrowings
Federal funds purchased and securities sold
under agreements to repurchase
Other borrowed funds
2008
FHLB advances
Trust preferred borrowings
Federal funds purchased and securities sold under
agreements to repurchase
Other borrowed funds
Federal Home Loan Bank Advances
Advances from the FHLB of Pittsburgh with rates ranging from 0.26% to 5.45% at December 31, 2009
are due as follows:
Matures during:
Amount
Weighted
Average
Rate
2010
2011
2012
2013
(Dollars in Thousands)
$
$
405,517
86,855
87,539
33,233
613,144
2.24%
3.64
3.06
2.90
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 4.75% of its advances (borrowings) from the FHLB of,
plus 0.75% 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, 2009. 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 becomes prudent to reinstate both. We received no dividends
- 86 -
from the FHLB of Pittsburgh during 2009. For additional information regarding our stock in the FHLB of
Pittsburgh see Note 15.
At December 31, 2009, 32 advances were outstanding totaling $613.1 million, with a weighted average
rate of 2.59%. Six advances totaling $95.0 million are convertible on a quarterly basis (at the discretion of the
FHLB) to a variable rate advance based upon the three-month London Interbank Offer Rate (“LIBOR”), 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 2009 and 2008, we purchased federal funds as a short-term funding source. At December 31,
2009, we had purchased $75.0 million in federal funds at a rate of 0.38%. 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 2009, we sold securities under agreements to repurchase as a funding source. At December 31,
2009, 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 $29.2 million at December 31, 2009. Securities sold under
agreements to repurchase with the corresponding carrying and market values of the underlying securities are due
as follows:
Borrowing
Amount
Rate
Collateral
Carrying Market
Value
Value
Accrued
Interest
(Dollars in Thousands)
2009
Over 90 days
$
25,000
4.87% $
29,226 $
29,471 $
101
2008
Over 90 days
$
25,000
4.87% $
29,500 $
30,223 $
101
Other Borrowed Funds
Included in other borrowed funds are collateralized borrowings of $44.7 million and $108.8 million at
December 31, 2009 and 2008, respectively, consisting of outstanding retail repurchase agreements, contractual
arrangements under which portions of certain securities are sold overnight to customers under agreements to
repurchase. Such borrowings were collateralized by mortgage-backed securities. The average rates on these
borrowings were 0.18% and 0.79% at December 31, 2009 and 2008, respectively. During 2009, we
participated in the FDIC’s Temporary Liquidity Guarantee Program (“TLGP”). Under this program we issued
$30.0 million of unsecured debt with a coupon rate of 2.74% and a 3 year maturity.
- 87 -
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, 2009 and
2008, WSFS was in compliance with regulatory capital requirements and was deemed a “well-capitalized”
institution.
The following table presents WSFS’ capital position as of December 31, 2009 and 2008:
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, 2009:
Total Capital (to risk-weighted assets)
Core Capital (to adjusted tangible assets)
Tangible Capital (to tangible assets)
Tier 1 Capital (to risk-weighted assets)
$ 359,834
323,957
323,957
323,957
12.24%
8.67
8.67
11.02
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)
$ 304,679
274,221
274,221
274,221
11.00%
7.99
7.99
9.90
$
$
235,163
149,404
56,026
117,581
8.00%
4.00
1.50
4.00
$
293,953
186,755
N/A
176,372
10.00%
5.00
N/A
6.00
221,561
137,303
51,489
110,780
8.00%
4.00
1.50
4.00
$ 276,951
171,629
N/A
166,170
10.00%
5.00
N/A
6.00
The Holding Company holds additional funds, mostly from the $25 million common equity raised in
the third quarter of 2009 that can be contributed as capital to the Bank, if desired. A $25 million infusion of
this cash to the Bank would increase total and Tier 1 capital by 85 basis points and core and tangible capital by
67 basis points.
Our capital structure includes one class of $0.01 par common stock outstanding, each share having equal
voting rights and one class of $.01 par preferred stock. During 2009 we completed a private placement of
common stock to Peninsula Investment Partners, L.P. for a total purchase price of $25.0 million. Information
concerning this transaction is included in Note 21.
During 2009, we issued and sold senior preferred stock to the U.S. Department of Treasury under its
Capital Purchase Program (“CPP”) totaling $52.6 million. Information concerning this transaction is included in
Note 21.
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. We did not
acquire any shares in 2009; however, we acquired 73,500 shares totaling $3.6 million during 2008 as part of these
programs.
The Holding Company
In April 2005, WSFS Capital Trust III, an unconsolidated subsidiary of WSFS Financial Corporation,
issued $67.0 million of aggregate principle of Pooled Floating Rate Securities at a variable interest rate of 177
- 88 -
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, 2009, the coupon rate of the Capital Trust III
securities was 2.03% 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. The remaining proceeds were used primarily to extinguish
higher rate debt and for general corporate purposes. 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.
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 $1.5 million, $1.8 million
and $1.7 million for 2009, 2008 and 2007, 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 50,000, 10,000, and 25,000 shares of our common stock during 2009, 2008 and 2007,
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.
We account for our obligations under the provisions of FASB ASC 715, Compensation – Retirement
Benefits (“ASC 715”) (Formerly SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other Than
Pensions). ASC 715 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.
ASC 715 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
ASC 715, all of which were previously netted against the plan’s funded status in our statement of financial
position pursuant to the provisions of ASC 715. These amounts will be subsequently recognized as net periodic
pension costs pursuant to our historical accounting policy for amortizing such amounts. Further, actuarial gains
- 89 -
and losses that arise in subsequent periods and are not recognized as net periodic pension cost in the same
periods will be recognized as a component of other comprehensive income. Those amounts will be
subsequently recognized as a component of net periodic pension cost on the same basis as the amounts
recognized in accumulated other comprehensive income at adoption of ASC 715.
In accordance with ASC 715, during 2010, the Company expects to recognize $12,000 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.
The following disclosures relating to postretirement benefits were measured at December 31, 2009:
2009
2008
2007
(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
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
- 90 -
$
$
$
$
$
$
$
$
$
$
2,502
161
141
(69)
(167)
2,568
$
$
$
—
167
(167)
—
2,339
142
137
56
(172)
2,502
$
$
$
—
172
(172)
—
2,233
137
125
(29)
(127)
2,339
—
127
(127)
—
(2,568) $
(2,502) $ (2,339)
—
—
626
—
—
774
(1,942) $
(1,728) $
—
—
795
(1,544)
161
141
61
18
381
$
$
142
137
61
16
356
$
$
137
125
61
19
342
5.75%
5.00%
6.00%
5.00%
5.75%
5.00%
$
(11) $
(12) $
9
(74)
60
6.00%
5.00%
5.00%
2009
9
(89)
72
5.75%
5.00%
5.00%
2008
(7)
7
(74)
63
6.00%
5.00%
5.00%
2005
Estimated future benefit payments:
The following table shows the expected future payments for the next ten years:
(In Thousands)
During 2010
During 2011
During 2012
During 2013
During 2014
During 2015 through 2019
$
$
119
121
127
131
129
660
1,287
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 2009, this annual premium cap amounted to
$2,496 per retiree. We estimate that we will contribute approximately $119,000 to the plan during fiscal 2010.
We have three additional plans which are no longer being provided to Associates. They are a
Supplemental Pension Plan with a corresponding liability of $646,000, an Early Retirement Window Plan with a
corresponding liability of $373,000 and a Director’s Plan with a corresponding liability of $108,000.
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 (benefit) 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
2009
2008
2007
$
7,699
(1,408)
$
9,741
119
$ 10,389
2,274
(8,384)
-
(2,910)
-
811
-
Total
$
(2,093)
$
6,950
$ 13,474
Current federal income taxes include taxes on income that cannot be offset by net operating loss
carryforwards.
- 91 -
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, 2009 and 2008:
(In Thousands)
Deferred tax liabilities:
Accelerated depreciation
Other
Prepaid expenses
Deferred loan costs
Total deferred tax liabilities
Deferred tax assets:
Allowance for loan losses
Tax credit carryforwards
Reserves and other
Deferred gains
Unrealized losses on available-for-sale securities
Total deferred tax assets
Valuation allowance
Net deferred tax asset
2009
2008
$
(683)
(140)
(1,537)
(1,955)
(4,315)
$
(802)
(99)
(1,556)
(1,959)
(4,416)
18,706
—
5,242
343
1,239
25,530
10,916
150
4,399
542
7,731
23,738
—
21,215
—
$ 19,322
$
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 ASC 320. Also included above for 2008 are
$369,000 of deferred tax assets recorded in conjunction with the acquisition of 1st Reverse. As a result of the
wind-down of 1st Reverse, there are no deferred tax assets for 1st Reverse included in 2009.
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 $21.2 million at December 31, 2009. Adjustments to decrease gross
deferred tax assets and the related valuation allowance in the amount of $2.0 million and $473,000 were made
in 2008 and 2007, respectively, to reflect federal and state tax net operating losses that have expired. No
federal or state net operating losses remain at December 31, 2009.
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 and other
nondeductible compensation
Nondeductible goodwill
Other
Effective tax rate
2009
35.0%
64.0
50.6
22.4
—
(18.0
)
(8.0)
0.4
146.4%
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%
- 92 -
During 2007, we donated an N.C. Wyeth mural which was previously displayed in our former
headquarters. Pursuant to an appraisal by a nationally recognized art appraisal firm, 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 (“IRS”).
We record interest and penalties on potential income tax deficiencies as income tax expense. Federal
tax years 2006 through 2008 remain subject to examination as of December 31, 2009, while tax years 2006
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 $800,000 and $1.0 million of
unrecognized state tax benefits, net of federal tax, will be realized during 2010 as a result of the expiration of
statutes of limitations. Excluding the potential impact of the IRS review of the mural valuation, we expect to
record less than $50,000 of additional reserves during 2010 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 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, as of December 31, 2007, standards under ASC
740 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 during the first quarter of 2009 we recovered $863,000
of taxes plus $275,000 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 in 2008.
The total amount of unrecognized tax benefits related to ASC 740 as of December 31, 2009 was $1.9
million, of which $1.3 million would affect our effective tax rate if recognized. The total amount of accrued
interest and penalties included in such unrecognized tax benefits were $372,000 and $0, respectively, of which
$119,000 was recorded as expense in 2009. A reconciliation of the total amounts of unrecognized tax benefits
during 2009 is as follows:
(In Thousands)
Unrecognized tax benefits at December 31, 2008
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 statutes of limitations
Unrecognized tax benefits at December 31, 2009
13. STOCK-BASED COMPENSATION
$
$
2,585
119
—
—
(854 )
1,850
Stock-based compensation is accounted for in accordance with ASC 718 (Formerly SFAS No. 123R,
Share-Based Payment). 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
- 93 -
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, 2009, there were 105,902 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 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 2009 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, 2009, 2008 and 2007,
respectively, and changes during the years then ended is presented below:
Stock Options:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
2009
2008
2007
Weighted-
Average
Exercise
Price
Weighted-
Average
Exercise
Price
Shares
Shares
Weighted-
Average
Exercise
Price
Shares
675,887 $
83,921
(16,460)
(9,880)
733,468
44.98
23.33
16.48
59.50
42.95
722,582 $
33,250
(60,240)
(19,705)
675,887
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
Exercisable at end of year
541,910 $
43.52
473,445 $
39.84
444,653 $
33.75
Weighted-average fair value of awards granted $
5.42
$
10.57
$
11.36
The variance in shares granted between the respective periods is due to a timing change for awarding
options. In periods prior to 2008, options were awarded during December of the respective year. However,
beginning with 2008, awards were granted in March, and as a result the awards typically granted during
December 2008 were granted during March of 2009.
Beginning January 1, 2009, 473,445 stock options were exercisable with an intrinsic value of $6.1
million. In addition, at January 1, 2009 there were 202,442 nonvested options with a grant date fair value of
$12.10. During the year ended December 31, 2009, 93,337 options vested with no intrinsic value, and a grant
date fair value of $12.63 per option. Also during 2009, 16,460 options were exercised with an intrinsic value of
$231,000. In addition, 8,412 vested options were forfeited with no intrinsic value, and a grant date fair value of
$14.17, while 9,880 options were forfeited in total with a grant date fair value of $13.86. There were 541,910
exercisable options remaining at December 31, 2009, with an intrinsic value of $1.5 million and a remaining
contractual term of 2.5 years. At December 31, 2009 there were 733,468 stock options outstanding with an
intrinsic value of $1.7 million and a remaining contractual term of 2.8 years and 191,558 nonvested options with
a grant date fair value of $8.92. During 2008, 60,240 options were exercised with an intrinsic value of $2.0
million and 105,479 options vested with a grant date fair value of $12.47 per option.
The total amount of compensation cost related to nonvested stock options as of December 31, 2009 was
$1.1 million. The weighted-average period over which it is expected to be recognized is 2.1 years. We issue new
shares upon the exercise of options.
- 94 -
During 2009, we granted 83,921 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 1.7% and 2.1% in
2009; an expected option life of three and three-quarter years; and an expected stock price volatility of between
34.4% and 41.3% in 2009. For the purposes of this option-pricing model, a dividend yield of between 1.8% and
2.1% 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.
Prior to the adoption of ASC 718, we used a graded-vesting schedule to calculate the expense related to
stock options. Since the adoption of ASC 718 we have used a straight-line schedule to calculate the expense
related to new stock options issued.
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 2009 and 2008 we issued 285 and 185 shares, respectively, of restricted stock units. These
awards vest over five years: 0% during the first two years, 25% at the end of each of the third and fourth years
and 50% at the end of the fifth year. In addition, during 2009 we issued 1,146 shares of restricted stock units,
which vest over four years, 25% on each anniversary date.
During 2009 we issued 25,248 shares of restricted stock and 5,259 shares of restricted stock units. These
awards vest over four years (25% per year on the first four anniversaries of the awards). In addition, for these
stock awards made to certain executive officers, there are additional vesting limitations relating to these awards.
Under these additional limitations; 25% of the awards will become transferrable at the time of repayment of at
least 25% of the aggregate financial assistance received by the Company under the Emergency Economic
Stabilization Act of 2008 (“EESA”); an additional 25% of the shares granted (for an aggregate total of 50% of the
shares transferrable) at the time of repayment of at least 50% of the aggregate financial assistance received by the
Company under EESA; an additional 25% of the shares granted (for an aggregate total of 75% of the shares
transferrable) at the time of repayment of at least 75% of the aggregate financial assistance received by the
Company under EESA. The remainder of the shares will vest following the time of repayment of 100% of the
aggregate financial assistance received by the Company under EESA. If the date specified has not occurred by
the tenth anniversary of the grant date, the grantee shall forfeit all of the restricted shares. Finally, we issued 640
shares of restricted stock during 2009 that vest over four years, 25% on each anniversary date which are not
subject to the additional EESA restrictions. Compensation costs related to these issuances are recognized over
the lives of the restricted stock and restricted stock units. We amortize the expense related to restricted stock
grants into salaries, benefits and other compensation expense on a straight-line basis over the requisite service
period for the entire award. When we award restricted stock to individuals from whom we may not receive
services in the future, such as those who are eligible for retirement, we recognize the expense of restricted
stock grants when we make the award, instead of amortizing the expense over the vesting period of the award.
The increase in restricted stock issued during 2009 was due to payment of bonuses to our senior
executive officers in restricted stock, in lieu of cash payments, which is a requirement of our agreement with
the U.S. Treasury under CPP.
During 2008, we created a performance-based incentive program under the terms of the 2005 Plan.
Under this program shares of WSFS stock may be awarded to certain members of management.
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
- 95 -
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 related to this program during 2009. 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.
At December 31, 2009 we had 105,902 shares remaining 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, 2009 was $1.4 million pretax
($1.1 million after tax), or $0.18 per share, to salaries, benefits and other compensation, compared to $1.1 million
pretax ($917,000 after tax), or $0.15 per share in 2008 and $1.5 million pretax ($1.2 million after tax), or $0.19
per share in 2007.
The following table summarizes all stock options outstanding and exercisable for Option Plans as of
December 31, 2009, segmented by range of exercise prices:
Outstanding
Weighted-
Average
Exercise
Price
Number
Exercisable
Weighted-
Average
Remaining
Contractual Life
Number
Weighted
Average
Exercise
Price
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
$
39,270
103,110
83,921
61,755
-
85,215
118,215
67,367
174,615
10.88
16.89
23.33
33.40
-
44.49
53.19
58.82
64.53
0.9 years
1.8 years
4.2 years
3.0 years
- years
4.0 years
3.0 years
4.8 years
1.5 years
$
39,270
103,110
-
61,755
-
67,885
60,251
60,804
148,835
10.88
16.89
-
33.40
-
44.01
53.18
58.86
64.40
Total
733,468
$
42.95
2.8 years
541,910
$
43.52
14. COMMITMENTS AND CONTINGENCIES
Lending Operations
At December 31, 2009, we had commitments to extend credit of $626.9 million. Commercial loan
commitments represented $270.1 million, while commercial mortgage and construction commitments were
$107.7 million and $56.0 million, respectively. Outstanding letters of credit were $60.9 million. Consumer lines
of credit totaled $126.3 million of which $107.5 million was secured by real estate and outstanding commitments
to make or acquire mortgage loans aggregated $6.0 million; all were at fixed rates ranging from 4.25% to 7.35%.
Mortgage commitments generally have closing dates within a six-month period.
- 96 -
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:
2010
2011
2012
$
$
$
3,170
658
144
We are currently in negotiations with our vendors for a number of these contracts which represents a
majority of these payments. The expenses for data processing and operations were $4.7 million for the year
ended December 31, 2009.
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
2009
2008
$
55,962
107,690
270,100
60,903
5,952
116,612
$ 129,935
126,918
249,643
59,703
8,270
126,071
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
- 97 -
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. 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. We had no repurchases during 2009, 2008 or 2007.
We typically sell fixed-rate, conforming first mortgage loans in the secondary market as part of our
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.
Swap Guarantees. We entered into agreements with three 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 financial institutions like us to provide access to interest rate swap transactions for our
customers without creating the swap ourselves.
At December 31, 2009, there were forty-four variable-rate to fixed-rate swap transactions between the
third-party financial institutions and our customers with an initial notional amount aggregating approximately
$209.6 million, and with maturities ranging from one month to thirteen years. The aggregate fair value of these
swaps to the customers was a liability of $12.6 million as of December 31, 2009, and all but one of the swap
transactions were in a paying position to third-party financial institutions.
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
- 98 -
underlying collateral. For additional discussion of our mortgage-backed securities-trading, see Footnote 1 to
the Consolidated Financial Statements.
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 which is not an exit price under
ASU 820, Fair Value Measurements and Disclosures. 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. We carry FHLB stock at cost, or par value, and evaluate FHLB stock for
impairment based on the ultimate recoverability of par value rather than by recognizing temporary declines in
value. As part of the impairment assessment of FHLB stock, management considers, among other things,
(i) the significance and length of time of any declines in net assets of the FHLB compared to its capital stock,
(ii) commitments by the FHLB to make payments required by law or regulations and the level of such
payments in relation to its operating performance, (iii) the impact of legislative and regulatory changes on
financial institutions and, accordingly, the customer base of the FHLB and (iv) the liquidity position of the
FHLB. The FHLB has access to the U.S. Government-Sponsored Enterprise Credit Facility, a secured lending
facility that serves as a liquidity backstop, substantially reducing the likelihood that the FHLB would need to
sell securities to raise liquidity and, thereby, cause the realization of large economic losses. The FHLB is rated
AAA and is likely to remain unchanged based on expectations that the FHLB has a very high degree of
government support and was in compliance with all regulatory capital requirements as of December 31, 2009.
Based on the above, we have determined there was no other-than-temporary impairment related to our FHLB
stock investment as of December 31, 2009.
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.
- 99 -
The book value and estimated fair value of our financial instruments are as follows:
December 31,
2009
2008
Book Value
Fair Value
Book Value
Fair Value
(In Thousands)
Financial assets:
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
Financial liabilities:
Deposits
Borrowed funds
Accrued interest payable
$ 321,749
45,517
681,242
2,479,155
60,254
39,305
12,407
$ 321,749
45,479
681,242
2,487,129
60,254
39,305
12,407
$ 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
39,305
11,609
2,561,871
854,809
4,240
2,572,418
858,896
4,240
2,122,352
1,066,745
6,794
2,101,881
1,035,401
6,794
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
2009
2008
$5,071
317
$5,926
248
16. RELATED PARTY TRANSACTIONS
We routinely enter into transactions with our directors and officers. Such transactions are made in the
ordinary course of business 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 $6.0 million and $5.0 million at December 31, 2009 and 2008,
respectively. During 2009, new loans and credit line advances to such related parties amounted to $8.9 million and
repayments amounted to $7.9 million.
We engage a law firm that is affiliated with one of our directors for general legal services. Total fees for
such services amounted to $24,000 during 2009 and $56,000 for 2007. We paid no fees to this firm during 2008.
- 100 -
17. PARENT COMPANY FINANCIAL INFORMATION
Condensed Statement of Financial Condition
December 31,
(In Thousands)
Assets:
Cash
Investment in subsidiaries
Investment in Capital Trust III
Other assets
Total assets
Liabilities:
Borrowings
Interest payable
Other liabilities
Total liabilities
Stockholders’ equity:
Preferred stock
Common stock
Capital in excess of par value
Comprehensive loss
Retained earnings
Treasury stock
Total stockholders’ equity
$
$
$
Total liabilities and stockholders’ equity
$
2009
2008
30,741
335,796
2,011
404
368,952
67,011
117
24
67,152
1
166
166,627
(2,022)
385,308
(248,280)
301,800
368,952
$
$
$
$
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
- 101 -
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
Dividends on preferred stock and accretion of discount
Net (loss) income allocable to common stockholders
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 in other liabilities
Net cash provided by (used for) operating activities
Investing activities:
(Increase) decrease in investment in subsidiaries
Net cash (used for) provided by investing activities
Financing activities:
Issuance of common stock
Issuance of preferred stock
Cash dividends paid
Treasury stock, net of reissuance
Net cash provided by (used for) financing activities
Increase (decrease) in cash
Cash at beginning of period
Cash at end of period
- 102 -
2009
2008
2007
$
1,716 $
64
1,780
324 $
65
389
337
64
401
1,797
79
1,876
3,275
(941 )
2,334
4,752
(1,437 )
3,315
(2,914 )
(96 )
32,563
759
29,649
663
(cid:2)
(2,590 )
(1,927 ) $ 16,136 $ 29,649
(1,945 )
18,081
16,136
(cid:2)
$
2009
2008
2007
$
663 $ 16,136 $ 29,649
(759 )
—
829
(123 )
610
(18,081 )
—
(432 )
(146 )
(2,523 )
(32,563 )
—
443
(38 )
(2,509 )
(47,363 )
(47,363 )
7,500
7,500
35,000
35,000
26,851
52,625
(5,210 )
—
74,266
3,956
—
(2,832 )
(3,555 )
(2,431 )
1,784
—
(2,403 )
(36,174 )
(36,793 )
27,513
3,228
$ 30,741 $
2,546
682
3,228 $
(4,302 )
4,984
682
18. SEGMENT INFORMATION
Under the definition of FASB ASC 280, Segment Reporting (“ASC 280”) (Formerly SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information) we discuss our business in four
segments. There is a segment for WSFS Bank (including WSFS Investment Group, Inc.), Cash Connect, (the
ATM division of WSFS), 1st Reverse, (the reverse mortgage subsidiary of WSFS), and Trust and Wealth
Management. Trust and Wealth Management combines Montchanin and the WSFS Trust and Wealth
Management Division into a single reportable segment because each has similar economic characteristics,
products, customers and distribution methods. During 2009 we began to report the results of 1st Reverse as a
separate segment, consistent with the guidance promulgated in ASC 280. As required by ASC 280, all prior
years’ information has been updated to reflect this presentation.
The WSFS Bank segment provides financial products to commercial and retail customers through its
41 banking offices located in Delaware (36), Pennsylvania (4) and Virginia (1). Retail and Commercial
Banking, Commercial Real Estate Lending, Private Banking and other banking business units (including the
reorganization of WSFS Investment Group, Inc.) are operating departments of WSFS. These departments
share the same regulator, the same market, many of the same customers and provide similar products and
services through the general infrastructure of the Bank. Because of these and other reasons, these departments
are not considered discrete segments and are appropriately aggregated within the WSFS Bank segment of the
Company in accordance with ASC 280.
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.
During 2008, we acquired a majority interest in 1st Reverse Financial Services, LLC (1st Reverse),
which specialized in originating and subsequently selling reverse mortgage loans nationwide. These reverse
mortgages were government approved and insured. In 2009, we announced and completed a wind-down of
these operations. Included in the year ended December 31, 2009, is a $1.9 million pre-tax charge which
consists of the write-off of all related goodwill and intangibles, the uncollectable receivables and our
remaining investment in this subsidiary. This charge combined with the operating losses for 2009 represents
the $3.1 million net loss in this column.
The Wealth Management column is comprised of the WSFS Trust & Wealth Management Division
and Montchanin. In 2005, the WSFS Trust and Wealth Management division was established in response to
our commercial customers’ demand for the same high level service in their investment relationships that they
enjoy as banking customers of WSFS Bank. Montchanin provides asset management products and services to
customers in the Bank’s primary market area. Montchanin has one consolidated wholly owned subsidiary,
Cypress Capital Management, LLC (Cypress). Cypress is a Wilmington-based investment advisory firm
serving high net-worth individuals and institutions.
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, 2009, 2008, and
2007 follows:
- 103 -
For the Year Ended December 31,
2009:
(In Thousands)
External customer revenues:
Interest income
Noninterest income
Total external customer revenues
Intersegment revenues:
Interest income
Noninterest income
Total intersegment revenues
WSFS Bank
Cash
Connect
1st Reverse
Trust & Wealth
Management
Total
$
157,698
34,501
192,199
627
3,343
3,970
$
— $
11,992
11,992
—
408
408
$
32
2,023
2,055
$
—
1,725
1,725
157,730
50,241
207,971
—
—
—
—
—
—
627
3,751
4,378
Total revenue
196,169
12,400
2,055
1,725
212,349
External customer expenses:
Interest expense
Noninterest expenses
Provision for loan loss
Total external customer expenses
Intersegment expenses:
Interest expense
Noninterest expenses
Total intersegment expenses
Total expenses
53,086
95,447
47,811
196,344
—
408
408
196,752
—
5,387
—
5,387
627
905
1,532
6,919
—
4,917
—
4,917
—
261
261
—
2,753
—
2,753
—
2,177
2,177
53,086
108,504
47,811
209,401
627
3,751
4,378
5,178
4,930
213,779
Income (loss) before taxes
$
(583) $
5,481
$
(3,123)
$
(3,205) $
(1,430)
Income tax benefit
Consolidated net income
Cash and cash equivalents
Other segment assets
$
56,124
3,410,793
Total segment assets at December 31,
2009
$
3,466,917
Capital expenditures
$
6,287
$
$
$
264,903
14,861
$
— $
—
722
1,104
$
$
(2,093)
663
321,749
3,426,758
279,764
$
— $
1,826
$ 3,748,507
474
$
— $
15
$
6,776
- 104 -
852
852
5
—
5
857
—
2,568
—
2,568
—
204
204
$
—
2,622
2,622
166,477
45,989
212,466
—
—
—
3,529
3,482
7,011
2,622
219,477
—
4,128
—
4,128
—
1,769
1,769
77,258
89,098
23,024
189,380
3,529
3,482
7,011
WSFS Bank
Cash
Connect
1st Reverse
Trust & Wealth
Management
Total
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
$
— $
$
$
166,477
28,763
195,240
3,524
2,841
6,365
13,752
13,752
—
641
641
Total revenue
201,605
14,393
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
76,424
23,024
176,706
5
641
646
—
5,978
—
5,978
3,524
868
4,392
Total expenses
177,352
10,370
2,772
5,897
196,391
Income (loss) before taxes
$
24,253
$
4,023
$
(1,915)
$
(3,275) $
23,086
Income tax provision
Consolidated net income
Cash and cash equivalents
Other segment assets
$
57,962
3,168,512
Total segment assets at December 31,
2008
$
3,226,474
Capital expenditures
$
4,587
$
$
$
189,965
12,836
$
$
8
750
623
1,904
$
$
6,950
16,136
248,558
3,184,002
202,801
$
758
$
2,527
$ 3,432,560
204
$
108
$
1
$
4,900
- 105 -
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 Bank
Cash Connect
Trust & Wealth
Management
Total
$
189,477
28,479
217,956
8,684
2,325
11,009
$
— $
16,584
16,584
—
675
675
—
3,103
3,103
$ 189,477
48,166
237,643
—
—
—
8,684
3,000
11,684
Total revenue
228,965
17,259
3,103
249,327
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
72,633
5,021
185,122
—
675
675
—
4,683
—
4,683
8,684
1,076
9,760
—
4,715
—
4,715
—
1,249
1,249
107,468
82,031
5,021
194,520
8,684
3,000
11,684
Total expenses
185,797
14,443
5,964
206,204
Income (loss) before taxes
$
43,168
$
2,816 $
(2,861) $
43,123
Income tax provision
Consolidated net income
Cash and cash equivalents
Other segment assets
$
84,552
2,913,379
Total segment assets at December 31,
2007
$
2,997,931
Capital expenditures
$
8,134
The Company did not acquire its interest in 1st Reverse until 2008.
$
$
$
13,474
29,649
$
182,523 $
17,314
462
1,958
$ 267,537
2,932,651
199,837 $
2,420
$ 3,200,188
194 $
5
$
8,333
- 106 -
19. 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.
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.
During 2009 we decided to wind-down the operations of 1st Reverse due to the weakened prospect of
achieving required returns due, in part, to the current economic climate. During 2009 we had pre-tax losses of
$1.9 million related to the wind-down, which included the write-down of all related goodwill and intangibles.
We have included these losses in other operating expense.
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 build 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
$9.0 million in goodwill and $2.5 million in core deposit intangibles ("CDI"). This CDI will be amortized over
7.5 years, using straight-line methods. During 2009 and 2008 we recorded amortization expense of $370,000
and $14,000, respectively. The goodwill and intangible assets will be deducted for tax purposes. In the
transaction, WSFS acquired $95.3 million of deposits.
We engaged an independent third party to perform an appraisal of the Corporation as of December 31,
2009. This appraisal was completed in accordance with FASB ASC 350 “Goodwill and Other Intangibles”
(“ASC 350”). Based on the results of this appraisal, the goodwill related to the Sun National Bank branch
purchase passed Step 1 under ASC 350 as of December 31, 2009 and it was determined that no impairment
exists.
20. NONINTEREST EXPENSES
During the year ended December 31, 2009, we incurred $6.0 million of charges we consider to be
non-routine. These charges are included in Noninterest expenses in the Consolidated Statement of Operations
and include the following:
o A $1.9 million charge resulting from management’s decision to conduct an orderly wind-down of 1st
Reverse. The charge represents the write-off of all related goodwill and intangibles, uncollectible
receivables and our remaining investment in that subsidiary as well as miscellaneous payables arising
during the course of winding-down this subsidiary (reflected in Other operating expenses).
o A $1.7 million insurance premium charged by the FDIC representing our share of the special
assessment levied on the banking industry at June 30, 2009 (reflected in FDIC expenses).
- 107 -
o A $1.5 million charge related to fraudulent wire transfer activity affecting the accounts of two
customers ($1.3 million reflected in Other operating expense and $0.2 million reflected in Professional
fees).
o A $953,000 expense related to due diligence on an acquisition prospect in which discussions have
terminated (reflected in Professional fees).
There were no material non-routine charges recorded during 2008 or 2007.
21. STOCK AND COMMON STOCK WARRANTS
The Company entered into a purchase agreement with the U.S. Treasury on January 23, 2009,
pursuant to which the Company issued and sold 52,625 shares of the Company’s fixed-rate cumulative
perpetual preferred stock for a total purchase price of $52.6 million, and a 10-year warrant to purchase 175,105
shares of the Company’s common stock at an exercise price of $45.08 per share. The Company will pay the
Treasury Department a five percent dividend annually for each of the first five years of the investment and a
nine percent dividend thereafter until the shares are redeemed. The cumulative dividend for the preferred stock
is accrued for and payable on February 15, May 15, August 15 and November 15 of each year. The Company
has declared and paid $2.1 million in preferred stock dividends during 2009.
The Company allocated total proceeds of $52.6 million, based on the relative fair value of preferred
stock and common stock warrants, to preferred stock for $51.9 million and common stock warrants for
$693,000 respectively, on January 23, 2009. The preferred stock discount will be accreted, on an effective
yield method, to preferred stock over five years. The Company has accreted a total of $127,000 during the
year ended December 31, 2009 relating to the discount on preferred stock.
The preferred stock is nonvoting, except for class voting rights on certain matters that could affect the
shares adversely. It may be redeemed by us for the liquidation preference ($1,000 per share), plus accrued but
unpaid dividends, with the Treasury’s approval. The warrants are exercisable immediately and subject to
certain anti-dilution and other adjustments.
The Company completed a private placement of stock to Peninsula Investment Partners, L.P.
(Peninsula) on September 24, 2009, pursuant to which the Company issued and sold 862,069 shares of
common stock for a total purchase price of $25.0 million, and a 10-year warrant to purchase 129,310 shares of
the Company’s common stock at an exercise price of $29.00 per share. The warrants are immediately
exercisable.
The Company allocated total proceeds of $25.0 million, based on the relative fair value of common
stock and common stock warrants, to common stock for $23.5 million and common stock warrants for $1.5
million on September 24, 2009.
22. SUBSEQUENT EVENT
On February 9, 2010, we were advised that an executive of an armored car company based in Mount
Vernon, New York, was arrested and charged with fraud and theft in connection with an ATM vault cash
program. This same armored car company serves as an armored carrier for several customers of Cash
Connect, our ATM division.
Based on preliminary estimates, we believe there is approximately $4.8 million that should have been
in the vaults of the armored car carrier or in transit to those vaults as of February 9, 2010. Based on the early
stage of the federal investigation it is unknown if any or all of these funds are exposed to a loss. Cash Connect
has several layers of safeguards established in its operations. In the event a loss is determined, we have
avenues of recovery, including reimbursements from Cash Connect customers and through insurance claims.
- 108 -
If it is ultimately determined that a loss is probable and estimable, we will record the loss in the appropriate
fiscal period. If we are successful in making recoveries, we will record the recoveries in the period received,
or when the receipt of such recoveries becomes certain.
QUARTERLY FINANCIAL SUMMARY (Unaudited)
Three months ended
(In Thousands, Except Per Share Data)
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision
for loan losses
Noninterest income
Noninterest expenses
Income before taxes
Income tax (benefit) provision
Net Income
Dividends on preferred stock and
accretion of discount
Net Income available to
common shareholders
Earnings per share:
Basic
Diluted
12/31/09
09/30/09
06/30/09
03/31/09
12/31/08 09/30/08
06/30/08
03/31/08
$ 39,954 $ 39,130 $ 39,839 $ 38,807 $
11,874
28,080
12,678
15,402
11,935
27,606
(269)
(307)
38
12,837
26,293
15,483
10,810
14,538
25,569
(221)
(222)
1
13,459
26,380
11,997
14,383
12,667
30,955
(3,905)
(1,589)
(2,316)
14,916
23,891
7,653
16,238
11,101
24,374
2,965
25
2,940
39,785 $ 41,337 $ 40,795 $ 44,560
23,591
17,209
20,969
22,576
2,390
14,699
18,030
23,307
3,502
18,428
22,367
2,433
7,877
10,128
23,969
(5,964)
(2,644)
(3,320)
19,805
11,684
23,022
8,467
2,957
5,510
19,934
11,671
21,170
10,435
3,735
6,700
18,579
12,506
20,937
10,148
2,902
7,246
692
634
751
513
—
—
—
—
$
(654) $
(633) $
(3,067) $
2,427 $
(3,320) $
5,510 $
6,700 $
7,246
(0.09)
(0.09)
(0.10)
(0.10)
(0.50)
(0.50)
0.39
0.39
(0.54)
(0.54)
0.90
0.88
1.09
1.07
1.17
1.15
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.
- 109 -
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, 2009. 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, 2009, 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, 2009 and the effectiveness of the
Company’s internal control over financial reporting as of December 31, 2009, as stated in their reports, which
are included herein.
/s/ Mark A. Turner
Mark A. Turner
President and Chief Executive Officer
March 16, 2010
/s/ Stephen A. Fowle
Stephen A. Fowle
Executive Vice President and
Chief Financial Officer
- 110 -
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
WSFS Financial Corporation:
We have audited WSFS Financial Corporation’s (the Company) internal control over financial reporting as of
December 31, 2009, 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 maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2009, based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated statement of condition of WSFS Financial Corporation and subsidiaries as of
December 31, 2009 and 2008, 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, 2009, and our report
dated March 16, 2010 expressed an unqualified opinion on those consolidated financial statements.
Philadelphia, Pennsylvania
March 16, 2010
- 111 -
During the quarter ended December 31, 2009, 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.
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 “Corporate Governance - 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
29, 2010 (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
- 112 -
Shown below is information as of December 31, 2009 with respect to compensation plans under which equity
securities of the Registrant are authorized for issuance.
Equity Compensation Plan Information
(a)
(b)
(c)
Number of Securities to
be issued upon exercise of
outstanding options,
warrants and rights
Weighted-Average exercise
price of outstanding
options, warrants and
rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column) (a)
Equity compensation plans
approved by stockholders (1)
Equity compensation plans not
approved by stockholders
TOTAL
752,038
$
41.89
105,902
N/A
752,038
N/A
$
41.89
N/A
105,902
(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, AND DIRECTOR
INDEPENDENCE
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
PART IV
(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, 2009 and 2008, 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, 2009, together with the related notes and the report of KPMG LLP,
independent registered public accounting firm.
2. Schedules omitted as they are not applicable.
- 113 -
The following exhibits are incorporated by reference herein or annexed to this Annual Report:
Exhibit
Number
3.1
3.2
3.3
4.1
4.2
4.3
10.1
10.2
10.3
Description of Document
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.
Warrant for Purchase of Shares of Common Stock, incorporated herein
by reference to Exhibit 10.2 of the Registrant’s Current Report on Form
8-K filed on July 27, 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.
10.4
WSFS Financial Corporation Severance Policy for Executive Vice
Presidents dated February 28, 2008.
- 114 -
10.5
10.6
10.7
10.8
10.9
10.10
10.11
21
23
31.1
31.2
32
99.1
99.2
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 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 Form 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 Mr. 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.
Securities Purchase Agreement, dated July 27, 2009, between WSFS
Financial Corporation and Peninsula Investment Partners, L.P.,
incorporated herein by reference to Exhibit 10.1 of the Registrants
Current Report on Form 8-K on July 27, 2009.
Subsidiaries of Registrant.
Consent of KPMG LLP
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of CFO pursuant to Section 302 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
Certification of CEO pursuant to Section 5221
Certification of CFO pursuant to Section 5221
Exhibits 10.1 through 10.10 represent management contracts or compensatory plan arrangements.
- 115 -
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, 2010
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 Federal Savings Bank persons on behalf of the registrant and in the capacities and on the dates
indicated.
Date: March 16, 2010
BY: /s/ Marvin N. Schoenhals
Marvin N. Schoenhals
Chairman
Date: March 16, 2010
BY: /s/ Mark A. Turner
Mark A. Turner
President and Chief Executive Officer
Date: March 16, 2010
Date: March 16, 2010
Date: March 16, 2010
BY: /s/ Charles G. Cheleden
Charles G. Cheleden
Vice Chairman and Lead Director
BY: /s/ Jennifer W. Davis
Jennifer W. Davis
Director
BY: /s/ Donald W. Delson
Donald W. Delson
Director
Date: March 16, 2010
Date: March 16, 2010
Date: March 16, 2010
Date: March 16, 2010
Date: March 16, 2010
Date: March 16, 2010
Date: March 16, 2010
Date: March 16, 2010
BY: /s/ John F. Downey
John F. Downey
Director
BY: /s/ Linda C. Drake
Linda C. Drake
Director
BY: /s/ David E. Hollowell
David E. Hollowell
Director
BY: /s/ Joseph R. Julian
Joseph R. Julian
Director
BY: /s/ Dennis E. Klima
Dennis E. Klima
Director
BY: /s/ Calvert A. Morgan, Jr.
Calvert A. Morgan, Jr.
Director
BY: /s/ Thomas P. Preston
Thomas P. Preston
Director
BY: /s/ Scott E. Reed
Scott E. Reed
Director
Date: March 16, 2010
Date: March 16, 2010
BY: /s/ Claibourne D. Smith
Claibourne D. Smith
Director
BY: /s/ R. Ted Weschler
R. Ted Weschler
Director
Date: March 16, 2010
BY: /s/ Stephen A. Fowle
Stephen A. Fowle
Executive Vice President and
Chief Financial Officer
Date: March 16, 2010
BY: /s/ Robert F. Mack
Robert F. Mack
Senior Vice President and Controller
(This page has been left blank intentionally.)
(This page has been left blank intentionally.)
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
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
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
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 Trust & Wealth Management
Michael F. Jordan
Senior Vice President, Asset Recovery Management
Janis L. Julian
Senior Vice President, Trust & Wealth Management
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
Deborah A. Markwood
Senior Vice President, Director of Trust Services
S. James Mazarakis
Executive Vice President, Chief Technology Officer
Douglas R. Quaintance
Senior Vice President, Business Banking Division Manager
Deborah T. Roberts
Senior Vice President, Director of Retail Lending
Ronald V. Samuels
Senior Vice President, Assistant Treasurer
Thomas E. Stevenson
President, Cash Connect Division
Andrew F. Tauber
Senior Vice President, Commercial Banking
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, Commercial Banking
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
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
302-571-7264
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
©2010 WSFS Financial Corporation. All rights reserved.