2013
Annual Report
About
WSFS Financial Corporation
n g a g e D aSSociateS
e
D
e
l
i
v
e
r
i
n
g
S
t
e
l
l
a
r
S
e
r
v
ic
e
t e S
a
c
o
g
r
o
wing cuStom e r a D v
erS
n
w
o
r
u
o
r
o
f
e
u
l
a
v
D
n
a
WSFS Bank Center • 500 Delaware Avenue, Wilmington, DE 19801 • wsfsbank.com
©2014 WSFS Financial Corporation. All rights reserved.
wsfsbank.com
Website
Brooklyn, NY 11219
6201 15th Avenue
Transfer Agent
American Stock Transfer & Trust Company, LLC
stockholderrelations@wsfsbank.com
302-571-7264
Wilmington, DE 19801
500 Delaware Avenue
WSFS Bank Center
Investor Relations
WSFS Financial Corporation
Stockholders or others seeking information regarding the Company may call or write:
Information
Stockholder
WSFS Financial Corporation is a multi-billion dollar financial services company.
Its principal subsidiary, WSFS Bank, is the oldest, locally managed bank
and trust company headquartered in Delaware. WSFS has 52 offices located
in Delaware, Pennsylvania, Virginia and Nevada, and provides comprehensive
financial services including commercial banking, retail banking and trust
and wealth management.
Serving the Delaware Valley since 1832, WSFS Bank is the seventh oldest
bank in the United States continuously operating under the same name.
Other subsidiaries or divisions of WSFS Financial Corporation include:
Cash Connect® is a premier provider of ATM vault cash and related services
in the United States and operates more than 450 ATMs for WSFS Bank,
which has the largest branded ATM network in Delaware. Christiana Trust
provides fiduciary and investment services to personal trust clients, and
trustee, agency, custodial and commercial domicile services to corporate
and institutional clients. WSFS Investment Group, Inc. provides insurance
and brokerage products primarily to our retail banking clients. Cypress
Capital Management, LLC is a registered investment advisor with a primary
market segment of high net worth individuals offering a balanced investment
style focused on preservation of capital and current income. Array Financial
is a leading Delaware Valley mortgage banking company, specializing in a
variety of residential mortgage and refinancing solutions, and Arrow Land
Transfer is a related abstract and title company.
2013
Annual Report
About
WSFS Financial Corporation
n g a g e D aSSociateS
e
erS
n
w
o
r
u
o
r
o
f
e
u
l
a
v
D
n
a
g
r
o
wing cuStom e r a D v
t e S
a
c
o
D
e
l
i
v
e
r
i
n
g
S
t
e
l
l
a
r
S
e
r
v
ic
e
WSFS Financial Corporation is a multi-billion dollar financial services company.
Its principal subsidiary, WSFS Bank, is the oldest, locally managed bank
and trust company headquartered in Delaware. WSFS has 52 offices located
in Delaware, Pennsylvania, Virginia and Nevada, and provides comprehensive
financial services including commercial banking, retail banking and trust
and wealth management.
Serving the Delaware Valley since 1832, WSFS Bank is the seventh oldest
bank in the United States continuously operating under the same name.
Other subsidiaries or divisions of WSFS Financial Corporation include:
Cash Connect® is a premier provider of ATM vault cash and related services
in the United States and operates more than 450 ATMs for WSFS Bank,
which has the largest branded ATM network in Delaware. Christiana Trust
provides fiduciary and investment services to personal trust clients, and
trustee, agency, custodial and commercial domicile services to corporate
and institutional clients. WSFS Investment Group, Inc. provides insurance
and brokerage products primarily to our retail banking clients. Cypress
Capital Management, LLC is a registered investment advisor with a primary
market segment of high net worth individuals offering a balanced investment
style focused on preservation of capital and current income. Array Financial
is a leading Delaware Valley mortgage banking company, specializing in a
variety of residential mortgage and refinancing solutions, and Arrow Land
Transfer is a related abstract and title company.
WSFS Bank Center • 500 Delaware Avenue, Wilmington, DE 19801 • wsfsbank.com
©2014 WSFS Financial Corporation. All rights reserved.
wsfsbank.com
Website
Brooklyn, NY 11219
6201 15th Avenue
Transfer Agent
American Stock Transfer & Trust Company, LLC
stockholderrelations@wsfsbank.com
302-571-7264
Wilmington, DE 19801
500 Delaware Avenue
WSFS Bank Center
Investor Relations
WSFS Financial Corporation
Stockholders or others seeking information regarding the Company may call or write:
Information
Stockholder
Forward-Looking
Statements
This annual report contains estimates, predictions, opinions, projections and other “forward-looking statements” as that phrase is defined in the Private Securities Litigation Reform Act
of 1995. Such statements include, without limitation, references to the Company’s financial goals, management’s plans and objectives for future operations, financial and business
trends, business prospects, and management’s outlook or expectations for earnings, revenues, expenses, capital levels, liquidity levels, asset quality or other future financial or
business performance, strategies or expectations. Such forward-looking statements are based on various assumptions (some of which may be beyond the Company’s control) and
are subject to risks and uncertainties (which change over time) and other factors which could cause actual results to differ materially from those currently anticipated. Such risks
and uncertainties include, but are not limited to, those related to the economic environment, particularly in the market areas in which the Company operates, including an increase
in unemployment levels; the volatility of the financial and securities markets, including changes with respect to the market value of financial assets; changes in market interest rates
may increase funding costs and reduce earning asset yields thus reducing margin; increases in benchmark rates would increase debt service requirements for customers whose
terms include a variable interest rate, which may negatively impact the ability of borrowers to pay as contractually obligated; changes in government regulation affecting financial
institutions, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules being issued in accordance with this statute and potential expenses and
elevated capital levels associated therewith; possible additional loan losses and impairment of the collectability of loans; seasonality, which may impact customers, such as
construction-related businesses, the availability of public funds, and certain types of the Company’s fee revenue, such as mortgage originations; possible changes in trade, monetary
and fiscal policies, laws and regulations and other activities of governments, agencies, and similar organizations, may have an adverse effect on business; possible rules and regulations
issued by the Consumer Financial Protection Bureau or other regulators which might adversely impact our business model or products and services; possible stresses in the real
estate markets, including possible continued deterioration in property values that affect the collateral value of underlying real estate loans; the Company’s ability to expand into
new markets, develop competitive new products and services in a timely manner and to maintain profit margins in the face of competitive pressures; possible changes in consumer
and business spending and savings habits could affect the Company’s ability to increase assets and to attract deposits; the Company’s ability to effectively manage credit risk,
interest rate risk market risk, operational risk, legal risk, liquidity risk, reputational risk, and regulatory and compliance risk; the effects of increased competition from both banks and
non-banks; the effects of geopolitical instability and risks such as terrorist attacks; the effects of weather and natural disasters such as floods, droughts, wind, tornadoes and
hurricanes, and the effects of man-made disasters; possible changes in the speed of loan prepayments by the Company’s customers and loan origination or sales volumes; possible
acceleration of prepayments of mortgage-backed securities due to low interest rates, and the related acceleration of premium amortization on prepayments on mortgage-backed
securities due to low interest rates; and the costs associated with resolving any problem loans, litigation and other risks and uncertainties, discussed in the Company’s Form 10-K
for the year ended December 31, 2013 and other documents filed by the Company with the Securities and Exchange Commission from time to time. Forward looking statements are
as of the date they are made, and the Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or
on behalf of the Company.
MISSION
VISION
STRATEgY
VALUES
w S f S f i n a n c i a l c o r p o r a t i o n
Financial
Highlights
Net loans, including held for sale
Mortgage-backed securities and other investments
(Dollars in millions)
At December 31,
Total assets
Deposits
Borrowings
Stockholders’ equity
Number of offices
Number of full-service retail branches
(Dollars in thousands, except earnings per share data)
For the years ended December 31,
Net income
Net income allocable to common stockholders
Diluted earnings per common share
Return on average assets
Return on tangible common equity
Nonperforming assets to total assets
2013
$ 4,516
$ 2,936
$ 890
$ 3,187
$ 882
$ 383
52
39
2013
$ 46,882
$ 45,249
$ 5.06
2012
$ 4,375
$ 2,737
$ 952
$ 3,275
$ 637
$ 421
52
41
2012
$ 31,311
$ 28,541
$ 3.25
2011
$ 4,289
$ 2,713
$ 908
$ 3,135
$ 724
$ 392
50
40
2011
$ 22,677
$ 19,907
$ 2.28
1.07%
13.60%
1.06%
0.73%
9.15%
1.43%
0.56%
7.03%
2.14%
Net Income
(in thousands)
Diluted Earnings
per Common Share
Return on
Average Assets
Return on Tangible
Common Equity
$46,882
$5.06
1.07%
13.60%
$31,311
$22,677
$3.25
$2.28
0.73%
0.56%
9.15%
7.03%
2011
2012
2013
2011
2012
2013
2011
2012
2013
2011
2012
2013
Table of
Contents
Letter from Management 01 • Key 2013 Highlights 03 • A View from the Boardroom 04 • WSFS Franchise 06
Board of Directors & Senior Leadership Team 08 • Form 10-K & Stockholder Information IBC
46882.0
37505.6
28129.2
18752.8
9376.4
0.0
5.060000
4.216667
3.373333
2.530000
1.686667
0.843333
0.000000
1.070000
0.891667
0.713333
0.535000
0.356667
0.178333
0.000000
13.60
10.88
8.16
5.44
2.72
0.00
Forward-Looking
Statements
This annual report contains estimates, predictions, opinions, projections and other “forward-looking statements” as that phrase is defined in the Private Securities Litigation Reform Act
of 1995. Such statements include, without limitation, references to the Company’s financial goals, management’s plans and objectives for future operations, financial and business
trends, business prospects, and management’s outlook or expectations for earnings, revenues, expenses, capital levels, liquidity levels, asset quality or other future financial or
business performance, strategies or expectations. Such forward-looking statements are based on various assumptions (some of which may be beyond the Company’s control) and
are subject to risks and uncertainties (which change over time) and other factors which could cause actual results to differ materially from those currently anticipated. Such risks
and uncertainties include, but are not limited to, those related to the economic environment, particularly in the market areas in which the Company operates, including an increase
in unemployment levels; the volatility of the financial and securities markets, including changes with respect to the market value of financial assets; changes in market interest rates
may increase funding costs and reduce earning asset yields thus reducing margin; increases in benchmark rates would increase debt service requirements for customers whose
terms include a variable interest rate, which may negatively impact the ability of borrowers to pay as contractually obligated; changes in government regulation affecting financial
institutions, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules being issued in accordance with this statute and potential expenses and
elevated capital levels associated therewith; possible additional loan losses and impairment of the collectability of loans; seasonality, which may impact customers, such as
construction-related businesses, the availability of public funds, and certain types of the Company’s fee revenue, such as mortgage originations; possible changes in trade, monetary
and fiscal policies, laws and regulations and other activities of governments, agencies, and similar organizations, may have an adverse effect on business; possible rules and regulations
issued by the Consumer Financial Protection Bureau or other regulators which might adversely impact our business model or products and services; possible stresses in the real
estate markets, including possible continued deterioration in property values that affect the collateral value of underlying real estate loans; the Company’s ability to expand into
new markets, develop competitive new products and services in a timely manner and to maintain profit margins in the face of competitive pressures; possible changes in consumer
and business spending and savings habits could affect the Company’s ability to increase assets and to attract deposits; the Company’s ability to effectively manage credit risk,
interest rate risk market risk, operational risk, legal risk, liquidity risk, reputational risk, and regulatory and compliance risk; the effects of increased competition from both banks and
non-banks; the effects of geopolitical instability and risks such as terrorist attacks; the effects of weather and natural disasters such as floods, droughts, wind, tornadoes and
hurricanes, and the effects of man-made disasters; possible changes in the speed of loan prepayments by the Company’s customers and loan origination or sales volumes; possible
acceleration of prepayments of mortgage-backed securities due to low interest rates, and the related acceleration of premium amortization on prepayments on mortgage-backed
securities due to low interest rates; and the costs associated with resolving any problem loans, litigation and other risks and uncertainties, discussed in the Company’s Form 10-K
for the year ended December 31, 2013 and other documents filed by the Company with the Securities and Exchange Commission from time to time. Forward looking statements are
as of the date they are made, and the Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or
on behalf of the Company.
MISSION
VISION
STRATEgY
VALUES
w S f S f i n a n c i a l c o r p o r a t i o n
Financial
Highlights
(Dollars in millions)
At December 31,
Total assets
Net loans, including held for sale
Mortgage-backed securities and other investments
Deposits
Borrowings
Stockholders’ equity
Number of offices
Number of full-service retail branches
(Dollars in thousands, except earnings per share data)
For the years ended December 31,
Net income
Net income allocable to common stockholders
Diluted earnings per common share
Return on average assets
Return on tangible common equity
Nonperforming assets to total assets
2013
$ 4,516
$ 2,936
$ 890
$ 3,187
$ 882
$ 383
52
39
2013
$ 46,882
$ 45,249
$ 5.06
2012
$ 4,375
$ 2,737
$ 952
$ 3,275
$ 637
$ 421
52
41
2012
$ 31,311
$ 28,541
$ 3.25
2011
$ 4,289
$ 2,713
$ 908
$ 3,135
$ 724
$ 392
50
40
2011
$ 22,677
$ 19,907
$ 2.28
1.07%
13.60%
1.06%
0.73%
9.15%
1.43%
0.56%
7.03%
2.14%
Net Income
(in thousands)
Diluted Earnings
per Common Share
Return on
Average Assets
Return on Tangible
Common Equity
$46,882
$5.06
1.07%
13.60%
$31,311
$22,677
$3.25
$2.28
0.73%
0.56%
9.15%
7.03%
2011
2012
2013
2011
2012
2013
2011
2012
2013
2011
2012
2013
Table of
Contents
Letter from Management 01 • Key 2013 Highlights 03 • A View from the Boardroom 04 • WSFS Franchise 06
Board of Directors & Senior Leadership Team 08 • Form 10-K & Stockholder Information IBC
46882.0
37505.6
28129.2
18752.8
9376.4
0.0
5.060000
4.216667
3.373333
2.530000
1.686667
0.843333
0.000000
1.070000
0.891667
0.713333
0.535000
0.356667
0.178333
0.000000
13.60
10.88
8.16
5.44
2.72
0.00
0 1
2 0 1 3 A N N U A L R E P O R T
Letter from
Management
Our recent results reflect the fundamental work and progress
we have made over many years toward our goal of becoming a
sustainably high-performing company.
Mark A. Turner
President & Chief Executive Officer
To our Associates, Customers, Owners, Community
Partners and Friends,
e
ers
n
w
o
r
u
o
r
o
f
In early 2013, we released the latest version of our Strategic
Plan. While it was a new version of our ongoing Plan
with a renewed focus on achieving profit
ability and growth goals—one theme has
remained a constant—our Strategy:
Engaged Associates delivering
Stellar Service growing Cus
tomer Advocates and value
for our Owners.SM This has
been our foundation for grow
ing the business and serving
our Customers and Community
for more than ten years. We
see this Strategy creating a
virtuous cycle; as we deliver on
our Service Strategy and grow
value for our Owners, we feed that
cycle, further root our organization
in the Community, increase our momen
tum, and continue to earn the right to remain
independent.
e
u
o
r
G
A
v
l
d
n
A
We are pleased to announce that our 2013 results show us
ahead in most of our major Strategic Plan metrics as a result
of profitable growth in essentially every aspect of our
business. WSFS reported net income of $46.9 million, or
$5.06 per diluted common share for the full year of 2013,
compared to $31.3 million, or $3.25 per share, in 2012.
Return on assets (ROA) reached 1.07% and return on tangible
common equity (ROTCE) was 13.6% for 2013,
compared to 0.73% and 9.15% in 2012. In
addition, the results mark our stron
gest performance since 2007, and
included a 56% increase in earn
n G A G e d A ssoCiAtes
ings per share over 2012.
Our success was driven by
fundamental improvements
across our franchise, including
growth in loans, core deposits
and revenue; improvements in
credit quality and costs; care
ful expense management; as
well as the added benefits from
prudent acquisitions of businesses
and special assets.
t e s
A
C
o
Our organic growth in revenue has been
supplemented by welltimed, highquality acquisi
tion initiatives. These include the purchase of Array Financial
and Arrow Land Transfer, a nearby Pennsylvania mortgage
banking and title insurance operator, which we completed in
the third quarter of 2013. The addition of Array and Arrow
winG Custom e r A d v
0 2
us as an organization, strengthen our culture and brand, and
make our high performance sustainable.
Our recent results reflect the fundamental work and prog
ress we have made over many years toward our goal of
becoming a sustainably highperforming company. Our
prior and future investments in Associates, infrastructure,
products, technology, and new businesses, combined with
our Values and Strategy of Engaged Associates delivering
Stellar Service growing Customer Advocates and value for
our Owners,SM will continue to be key in realizing that goal
and our overarching Mission of Service.
We encourage you to read this letter and highlights, in tan
dem with the letter from the Board which focuses on our
communitybased business model and how we deliver on,
and evaluate our goal of providing value to our Owners.
Given our Strategy, foundation and momentum, we enter
2014 with a lot yet to accomplish, but confident in our
path forward.
On behalf of the Executive Management team, we are,
sincerely yours,
has lifted our fee income and added to our earnings per
share. We expect continued momentum and growth in those
businesses that will add meaningfully to the bottom line.
As a followup to this activity, we announced we are also
combining with First National Bank of Wyoming (DE),
planned for the third quarter of 2014. We are excited about
this merger and the highquality bankers and Customers
whom we will welcome into our organization. This partner
ship will further strengthen our Retail, Commercial and
Small Business teams and will bring new and valued rela
tionships to our entire franchise.
Starting in 2014, we are in the second year of our three year
Strategic Plan. In the Plan, we outlined our path to “sustain
able high performance.” We broadly define high performance
as being firmly in the top quintile of peers’ performance on the
measures of return on assets, return on (tangible common)
equity, and growth in earnings per share. Since 2009, the
nadir of our and our industry’s performance in the midst of
the Great Recession, our results have steadily, and recently,
more rapidly, improved. In 2013 we were pleased, but not
fully satisfied, to have achieved a core ROA of 1.02%. In an
oversimplified view, we would hope to achieve a core ROA
of 1.10% by the end of 2014 as another interim step toward
our path of achieving a core ROA of 1.20% to 1.30% by the
end of 2015. We report on our progress quarterly, as well as
the whats, hows, whys and any course corrections, to our
Board and to our shareholders, in our periodic investor pre
sentations that can be found at investors.wsfsbank.com/
presentations.cfm.
Return on assets reflect singular performance, so a word on
sustainability and our Values is in order. Our Values capture
our company ethos and desired behaviors, regardless of our
immediate goals. We have put a great deal of time into
developing them. In order to have the most impact, we
believe they are, and should be consistent with our Mission,
Vision and Strategy; be simple and memorable; reinforce
one another; capture the truth of both who we are now, and
our aspirations of who we want to become; and serve as
statements to which others can hold us accountable. Our
Values are: At WSFS, we: do the right thing; serve others;
are open and candid; and grow and improve. We strongly
believe if we follow these guiding behaviors, they will unite
wsfs financial corporation 0 3
Key 2013
Highlights
Net Loans
(in billions)
Net Loans
(in billions)
Core Deposits
Core Deposits
Credit Quality
Credit Quality
Growth in Fee Businesses
(in millions)
Growth in Fee Businesses
(in millions)
As of December 31, 2013,
net loans grew to $2.9 bil
lion. All loan categories
grew in 2013, from both
market share gains and
increase in organic growth.
21%
INTEREST
DDA
$2.9
$3.0
21%
NON-INTEREST
DDA
42%
MM &
SAVINGS
$2.8
$2.7
15%
TIME
1%
SWEEPS
$3.0
$2.9
$2.8
$2.7
4Q12
1Q13
2Q13 3Q13 4Q13
4Q12
1Q13
2Q13 3Q13 4Q13
.
$75.0
$67.5
%
5
2
5
As of December 31, 2013,
core deposits represented
a robust 84% of the $3.0
billion in total Customer
funding.
$52.5
%
8
$45.0
6
3
$37.5
%
2
4
3
%
9
7
4
%
8
6
3
%
6
3
3
%
4
1
4
$60.0
.
.
.
.
.
.
.
%
5
0
4
.
%
6
3
3
.
%
7
9
2
.
%
8
0
3
.
%
9
7
4
.
%
8
6
3
.
42%
MM &
SAVINGS
%
4
1
4
.
%
5
0
4
.
%
8
0
3
.
%
2
4
3
.
%
7
9
2
%
5
2
5
.
%
21%
8
INTEREST
6
3
DDA
.
21%
NON-INTEREST
DDA
$30.0
$22.5
$15.0
$7.5
15%
TIME
4Q12
1%
SWEEPS
1Q13 2Q13 3Q13 4Q13
Growth in Fee Businesses
(in millions)
$0.0
1Q13 2Q13 3Q13 4Q13
2010
2009
2011
2012 2013
4Q12
2009
2010
2011
2012 2013
$75.0
$67.5
$60.0
$52.5
$45.0
$37.5
$30.0
$22.5
$15.0
$7.5
$0.0
75.0
67.5
60.0
52.5
45.0
37.5
30.0
22.5
15.0
7.5
0.0
Net Loans
(in billions)
Net Loans
(in billions)
Core Deposits
Core Deposits
Credit Quality
$3.0
$2.9
$2.8
$2.7
21%
INTEREST
DDA
21%
NON-INTEREST
DDA
42%
MM &
SAVINGS
15%
TIME
1%
SWEEPS
4Q12
1Q13
2Q13 3Q13 4Q13
4Q12
1Q13
2Q13 3Q13 4Q13
Credit Quality
Growth in Fee Businesses
(in millions)
Major credit quality statis
tics improved in 2013.
%
5
2
5
$67.5
$75.0
.
%
9
7
4
.
$60.0
%
4
1
4
.
%
5
0
4
.
%
8
0
3
.
%
6
3
3
.
%
7
9
2
.
%
8
6
3
.
$52.5
%
8
$45.0
6
3
$37.5
.
$30.0
$22.5
%
4
1
4
.
%
2
4
3
.
%
5
0
4
.
%
8
0
3
.
%
6
3
3
.
%
7
9
2
.
%
5
2
5
.
%
21%
8
INTEREST
6
3
DDA
.
21%
NON-INTEREST
DDA
%
9
7
4
.
%
8
6
3
.
%
2
4
3
.
42%
MM &
SAVINGS
15%
TIME
4Q12
1%
SWEEPS
1Q13 2Q13 3Q13 4Q13
CLASSIFIED ASSETS TO TIER 1 + ALLL
$15.0
$7.5
TOTAL CRITICIzED ASSETS
TO TIER 1 + ALLL
$0.0
1Q13 2Q13 3Q13 4Q13
2010
2009
2011
4Q12
2012 2013
$75.0
$67.5
$60.0
$52.5
$45.0
$37.5
$30.0
$22.5
$15.0
$7.5
$0.0
2009
2010
2011
2012 2013
3000000
2900000
2800000
2700000
2600000
2500000
52.50
43.75
35.00
26.25
17.50
8.75
0.00
3000000
2900000
2800000
2700000
2600000
2500000
3000000
2900000
For the eighth year in a row,
WSFS was ranked on The
News Journal’s “2013 Top
Workplaces” list in Delaware
and received the Special
Ethics Award.
2800000
2700000
2600000
2500000
75.0
67.5
60.0
52.5
45.0
37.5
30.0
22.5
15.0
7.5
0.0
52.50
43.75
35.00
26.25
17.50
8.75
0.00
WEALTh MANAGEMENT
CASh CONNECT®
WSFS BANk*
* Excludes security gains, reverse mortgage
consolidation gains and BOLI gain
52.50
75.0
67.5
60.0
43.75
WSFS was awarded the “Top
Bank” in Delaware by the
readers of The News Journal—
Delaware’s largest newspaper
—for the third year in a row.
35.00
26.25
30.0
45.0
52.5
37.5
17.50
8.75
0.00
22.5
15.0
7.5
0.0
52.50
43.75
35.00
26.25
17.50
8.75
0.00
At WSFS, we believe we have a corporate and social
responsibility to strengthen the communities that we
serve. It is an integral part of our culture and one of our
core Values. Through partnerships with organizations like
the Sunday Breakfast Mission, Special Olympics, Girls
Inc. and March of Dimes, our dedicated Associates con
tinue to make a visible impact in the lives of others.
75.0
67.5
60.0
52.5
45.0
37.5
30.0
22.5
15.0
7.5
0.0
$3.0
$2.9
$2.8
$2.7
3000000
2900000
2800000
2700000
2600000
2500000
2013 ANNUAL REPORT 0 4
w s f s f i n a n c i a l c o r p o r a t i o n
A View from
the Boardroom—Volume II
Our primary task is therefore to be undeniably
different from our competitors and deliver
on that difference with excellence. That is
the business model we have pursued for
the last generation of the WSFS Board and
Management.
Marvin N. Schoenhals and Charles G. Cheleden
Dear Fellow Shareholders:
Your Board is pleased to share more of our perspective on
WSFS in this second edition of “A View from the Boardroom.”
Our Board Principles and Guidelines document states, “The
WSFS Board is committed to being a highperformance Board
and to ensuring that WSFS is a highperforming Company.”
[Document available at investors.wsfsbank.com/governance.
cfm.] Last year we wrote about some of the steps we had
taken regarding being a highperformance Board as well as
CEO compensation. This year we want to focus on the sec
ond part—being a highperformance Company.
We define high performance as being in the top quintile of
results of similar banking organizations over a five to seven
year horizon. This period is representative of typical business
cycles and also an appropriate planning period. We compare
our performance to other institutions with respect to return
on assets (ROA), return on equity (ROE) and growth in earn
ings per share (GEPS). While we cannot control how the
market values WSFS at any point in time, we believe that if
we achieve these metrics, appropriate valuations will follow.
To answer the question, Are we creating value for our share-
holders?, we compare our total shareholder return (TSR)
over several different time frames compared to several bank
stock indices.
Before discussing results, we want to share more of the
Board’s philosophical framework. It is our goal to constantly
behave as “Owners.” That means decisions should be based
upon what is best for the Company on a longerterm view,
even if it is not optimal for current results. We believe that
being a locally managed, supercommunity bank is an
outstanding business model. The model works best as an
independent, locally managed bank. however, we must
consistently earn the right to remain independent. That
leads to the topquintile metrics mentioned above.
It is also important for you to know that we consider your
capital one of the dearest resources we have. As a result, we
manage it extremely carefully, while recognizing the tension
that our regulators would like us to have very high capital
levels, but having “too much” capital will dilute returns
for shareholders.
As a result of our longerterm orientation and our commit
ment to being high performing, we believe investors in
WSFS should be those with a longterm, highperformance
orientation as well.
At 182 years old, WSFS has the distinction of being the sev
enth oldest bank in the United States operating under the
same name and charter. That longevity bleeds into our
corporate DNA, and we want to continue to be an integral
part of our communities for many more generations. Our
0 5
communities depend on us to thrive and we depend on them
for our success. With that in mind, we strive to make deci
sions that are more consistent with the fabric of our com
munities. This leads to our longerterm, relationshiporiented
actions including volunteer and philanthropic activities
which are a winwin for everyone.
It is our belief that if we execute well, we can achieve consis
tently above average returns for our Owners over the long
term. Our primary market has evolved so that almost 90% of
the traditional bank market share is held by only six institu
tions: WSFS and five large regional, national or international
banks, all of which are good competitors and good banks.
however, they use a regional or national banking ‘commodity’
playbook. It is based on relatively rigid products and prices
and depends on scale and brand recognition. Our goal is to be
competitive on all access points, products and prices, but to
differentiate ourselves by offering a much higher degree of
reliability, flexibility, creativity, local knowledge and decision
making, including access to decision makers. If one wants
these attributes, there is only one real choice of size and
sophistication in our market—WSFS Bank.
Our primary task is therefore to be undeniably different from
our competitors and deliver on that difference with excel
lence. That is the business model we have pursued for the
last generation of the WSFS Board and Management. That is
the “moat” around our business, to use Warren Buffett’s
imagery, which we work to make wider every year.
So with that philosophy and context, how was performance
compared to our top quintile goals and what has been our
TSR performance? To keep this letter to a reasonable length, we
will not include all the data here on ROA, ROE and GEPS. It is
available at investors.wsfsbank.com/presentations.cfm.
however, we have not met the top quintile tests for the last
several years for these three metrics as we invested heavily in
our business in a down economy. Over the last two years we
have moved from the low middle ranges of ROA to the high
middle at December 31, 2013 (68th percentile) as we’ve opti
mized these prior investments. In ROE and GEPS we moved
to the 80th and 90th percentiles respectively.
To compute TSR we use three, five, seven and tenyear
time frames. For each time window, we look at each of the
trailing eight reporting quarters. This creates 32 separate
time periods over which we calculate WSFS’ TSR performance.
We compare those 32 data points to five different bank
stock indices: NASDAQ Bank, kBW Bank, ABA Community
Bank, SNL U.S. Bank and Thrift, and the SNL U.S. Bank
$1B–$5B.
At the end of this process we have 160 data points against
which to evaluate WSFS’ performance. We acknowledge that
many of the data points are correlated, but believe it is an
informative analysis, especially when performed and
reported consistently over time.
We are pleased to report that as of December 31, 2013, WSFS
had outperformed all five peer indices over all four time
frames and all eight starting points, 158 times out of a pos
sible total of 160, or 98.8%. Note that in some of these time
frames, TSR was negative for all indices, but WSFS was down
less than those indices.
We would not expect to do this well all of the time. Certainly
2013 was a very good year for us, both in terms of financial
performance and TSR. however, it is our pledge to report this
same, or similar data (e.g., if the indices change and we must
substitute a new one) every year in this letter.
We will end on a more humble and forwardlooking note, and
one that is a challenge to ourselves and our industry. While
we compare extremely well to our peer competitors, when
compared to broader market indexes, like the Dow Jones
Industrial and the S&P 500, we do not do quite as well (78%
outperformance). This is obviously a commentary on how
difficult the 2008 Financial Crisis and natural regulatory
response has been on the banking industry.
Finally, we encourage you to read this letter in tandem with
the letter from Management, and especially that letter’s
focus on how we apply WSFS’ Stellar Service Strategy to
achieve our Mission and produce highperforming results.
On behalf of the entire WSFS Board, we would encourage
any shareholder who would like to discuss this letter or any
matter pertaining to the performance of WSFS to contact us
at Chairman@wsfsbank.com or by phone at 3025717264.
We would welcome the dialogue.
Sincerely,
Marvin N. “Skip” Schoenhals
Chairman of the Board
Charles G. Cheleden
Vice Chairman & Lead Director
2013 ANNUAL REPORT 0 6
0 6
0 2
W S F S F I N A N C I A L C O R P O R A T I O N
W S F S F I N A N C I A L C O R P O R A T I O N
W S F S F I N A N C I A L C O R P O R A T I O N
52
OffIces
Delaware is located within close proximity to major
Mid-Atlantic cities such as Washington DC, Baltimore,
Philadelphia and New York.
ME
VT
A L A S KA
MI
NH
MA
NY
CT
RI
PA
NEW YORK
PHILADELPHIA
NJ
BALTIMORE
DE
MD
WASHINGTON DC
WV
VA
NC
•
WSFS BANk CENTER CORPORATE hEADQUARTERS
INDICATES WSFS BRANCh OFFICE AND LPO LOCATIONS
NOT ShOWN ON MAP: ANNANDALE, VA (LPO)
0 7
0 7
2 0 1 3 A N N U A L R E P O R T
W S F S F I N A N C I A L C O R P O R A T I O N
WSFS
franchise
CORPORATE hEADQUARTERS
WSFS Bank Center
500 Delaware Avenue
Wilmington, DE 19801
BRANCh OFFICES
Airport Plaza
144 North DuPont highway
New Castle, DE 19720
Brandywine—Inside Safeway
2522 Foulk Road
Wilmington, DE 19810
Branmar
1712 Foulk Road
Wilmington, DE 19803
Camden
4566 South Dupont highway
Camden, DE 19934
College Square
115 College Square
Newark, DE 19711
Concord Square
4401 Concord Pike
Wilmington, DE 19803
Delaware City
145 Clinton Street
Delaware City, DE 19706
Dover Mart
290 South DuPont highway
Dover, DE 19901
Edgmont
5000 West Chester Pike
Newtown Square, PA 19073
Fairfax
2005 Concord Pike
Wilmington, DE 19803
Fox Run
210 Fox hunt Drive
Bear, DE 19701
Glasgow—Inside Safeway
2400 Peoples Plaza
Newark, DE 19702
Glen Mills
395 WilmingtonWest Chester Pike
Glen Mills, PA 19342
Greenville
3908 kennett Pike
Wilmington, DE 19807
Hockessin
7450 Lancaster Pike
hockessin, DE 19707
Holly Oak—Inside Super Fresh
2105 Philadelphia Pike
Claymont, DE 19703
Kennett Square
100 Old Forge Lane
kennett Square, PA 19348
Lantana
6274 Limestone Road
hockessin, DE 19707
Lewes
34383 Carpenters Way
Lewes, DE 19958
Long Neck
25926 Plaza Drive
Millsboro, DE 19966
Media
7 East Baltimore Avenue
Media, PA 19063
(Relocating to this location spring, 2014)
Middletown
400 East Main Street
Middletown, DE 19709
Midway
4601 kirkwood highway
Wilmington, DE 19808
Milford
688 North DuPont Boulevard
Milford, DE 19963
Millsboro
26644 Center View Drive
Millsboro, DE 19966
Ocean View
69 Atlantic Avenue
Ocean View, DE 19970
Oxford (Limited services)
59 South Third Street
Suite 1
Oxford, PA 19363
Pike Creek
4730 Limestone Road
Wilmington, DE 19808
Prices Corner
3202 kirkwood highway
Wilmington, DE 19808
Rehoboth Beach
19335 Coastal highway
Rehoboth Beach, DE 19971
Seaford
22820 Sussex highway
Unit #19
Seaford, DE 19973
Selbyville
38394 DuPont Boulevard
Unit#2
Selbyville, DE 19975
Smyrna
400 Jimmy Drive
Smyrna, DE 19977
Trolley Square
9A Trolley Square
Wilmington, DE 19806
Union Street
211 North Union Street
Wilmington, DE 19805
University Plaza
100 University Plaza
Newark, DE 19702
West Chester
400 East Market Street
West Chester, PA 19382
West Dover
1486 Forrest Avenue
Dover, DE 19904
West Newark
201 Suburban Plaza
Newark, DE 19711
WSFS Bank Center
500 Delaware Avenue
Wilmington, DE 19801
LOAN PRODUCTION OFFICES
Annandale
7010 Little River Turnpike
Suite 330
Annandale, VA 22003
Dover
160 Green Tree Drive
Suite 105
Dover, DE 19904
Lewes
1515 Savannah Road
Suite 103
Lewes, DE 19958
Plymouth Meeting
450 Plymouth Road
Suite 306
Plymouth Meeting, PA 19462
MORTGAGE OFFICES
Array Financial
510 West Lancaster Avenue
haverford, PA 19041
Retail Services Center
115 College Square
Newark, DE 19711
WEALTh MANAGEMENT OFFICES
Christiana Trust
Greenville Wealth Management Center
3801 kennett Pike
Suite C200
Wilmington, DE 19807
Christiana Trust
West Coast Wealth Management Office
101 Convention Center Drive
Suite P109
Las Vegas, NV 89109
Cypress Capital Management, LLC
1220 Market Building
Suite 704
Wilmington, DE 19801
OThER OFFICES
Cash Connect®
500 Creek View Road
Suite 100
Newark, DE 19711
Operations Center
Wilmington, DE
TELEPhONE CUSTOMER SERVICE
(888) WSFSBANk
(888) 9737226
ONLINE & MOBILE BANkING
wsfsbank.com
m.wsfsbank.com
0 8
Board of Directors
Anat Bird
Chair, Audit Committee
President & CEO at SCB Forums, Ltd.
Charles G. Cheleden
Vice Chairman & Lead Director,
WSFS Financial Corporation
Chair, Corporate Governance and
Nominating Committee
AttorneyatLaw
Jennifer Wagner Davis
Chair, Personnel and
Compensation Committee
Senior Vice President for Administration
and Finance at George Mason University
Donald W. Delson
Chair, Trust Committee
Former Managing Director of the
Investment Banking Division at keefe,
Bruyette, & Woods, Inc.
Eleuthère I. du Pont
President at
The Longwood Foundation
Zissimos A. Frangopoulos
Former President & CEO at Christiana
Bank & Trust Company
David G. Turner
Vice President & Partner
at IBM Global Business Services
Calvert A. Morgan, Jr.
Vice Chairman, WSFS Bank
Former Chairman, President & CEO at
PNC Bank, Delaware
Marvin N. Schoenhals
Chairman, WSFS Board of Directors
Former President & CEO, WSFS Financial
Corporation and WSFS Bank
Mark A. Turner
Chair, Executive Committee and
Corporate Development Committee
President & CEO, WSFS Financial
Corporation and WSFS Bank
We are grateful to Mr. zissimos Frangopoulos for his many years of dedicated service to the financial services industry and in particular, Christiana
Bank & Trust Company, Christiana Trust and the WSFS Board of Directors. he will be retiring from the Board in April 2014. We sincerely thank him
for his leadership and guidance which were invaluable during our successful partnership with Christiana Trust.
Senior Leadership Team
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 Division Manager
Ira M. Brownstein
Vice President,
Array Financial
Lisa M. Brubaker
Senior Vice President,
Director of Retail Strategy
William M. Byrne
Senior Vice President,
Commercial Banking
Ralph J. Cicalese
Senior Vice President,
Commercial Banking Team Leader
Stephen P. Clark
Senior Vice President,
Middle Market Division Manager
Justin C. Dunn
Senior Vice President,
Marketing Director
Peggy H. Eddens
Executive Vice President,
Chief human Capital Officer
Stephen A. Fowle
Executive Vice President,
Chief Financial Officer
Louis W. Geibel, Jr
Senior Vice President,
Chief Trust Officer
Paul D. Geraghty
Executive Vice President,
Chief Wealth Officer
Mark A. Gordon
Senior Vice President,
Director of Private Banking
Paul S. Greenplate
Senior Vice President,
Treasurer
Cheryl A. Hughes
Senior Vice President,
Director of Transaction Services
John D. Clatworthy
Senior Vice President,
Director of Client Services, Cash Connect®
Michael F. Jordan
Senior Vice President,
Director of Asset Recovery
Donna M. Coughey
Pennsylvania Market Sales Leader,
Commercial Banking
Janis L. Julian
Senior Vice President,
Director of Community Strategy
Cindy Crompton-Barone
Senior Vice President,
Director of Associate Relations
Thomas W. Kearney
Executive Vice President,
Chief Risk Officer
Glenn L. Kocher
Senior Vice President,
Chief Credit Officer
Shari A. Kruzinski
Senior Vice President,
Regional Manager
Deborah T. Roberts
Senior Vice President,
Director of Retail Lending
Jeffrey M. Ruben
President,
Array Financial and Arrow Land Transfer
Rodger Levenson
Executive Vice President,
Chief Commercial Banking Officer
Ronald V. Samuels
Senior Vice President,
Assistant Treasurer
James J. Lucianetti
Senior Vice President,
Director of Internal Audit
Thomas E. Stevenson
President,
Cash Connect®
Dennis B. Matarangas
Senior Vice President,
Commercial Banking Team Leader
George H. Trapnell
Senior Vice President,
Private Banking Relationship Manager
S. James Mazarakis
Executive Vice President,
Chief Technology Officer
Charles K. Mosher
Senior Vice President,
Controller
Jeffrey P. McCabe
Senior Vice President,
Director of Investment Research,
Cypress Capital Management
John L. Olsen
Senior Vice President,
General Counsel
Douglas R. Quaintance
Senior Vice President,
Business Banking Division Manager
Mark A. Turner
President,
Chief Executive Officer
Joseph C. Walker
Senior Vice President,
Director of Commercial Real Estate Lending
Kelly A. Wellborn
President,
Cypress Capital Management
Richard M. Wright
Executive Vice President,
Chief Retail Banking Officer
Linda H. Ziegler
Senior Vice President,
Regional Manager
wsfs financial corporation MISSION
VISION
STRATEgY
VALUES
w S f S f i n a n c i a l c o r p o r a t i o n
Financial
Highlights
Net loans, including held for sale
Mortgage-backed securities and other investments
(Dollars in millions)
At December 31,
Total assets
Deposits
Borrowings
Stockholders’ equity
Number of offices
Number of full-service retail branches
(Dollars in thousands, except earnings per share data)
For the years ended December 31,
Net income
Net income allocable to common stockholders
Diluted earnings per common share
Return on average assets
Return on tangible common equity
Nonperforming assets to total assets
2013
$ 4,516
$ 2,936
$ 890
$ 3,187
$ 882
$ 383
52
39
2013
$ 46,882
$ 45,249
$ 5.06
2012
$ 4,375
$ 2,737
$ 952
$ 3,275
$ 637
$ 421
52
41
2012
$ 31,311
$ 28,541
$ 3.25
2011
$ 4,289
$ 2,713
$ 908
$ 3,135
$ 724
$ 392
50
40
2011
$ 22,677
$ 19,907
$ 2.28
1.07%
13.60%
1.06%
0.73%
9.15%
1.43%
0.56%
7.03%
2.14%
Net Income
(in thousands)
Diluted Earnings
per Common Share
Return on
Average Assets
Return on Tangible
Common Equity
$46,882
$5.06
1.07%
13.60%
$31,311
$22,677
$3.25
$2.28
0.73%
0.56%
9.15%
7.03%
2011
2012
2013
2011
2012
2013
2011
2012
2013
2011
2012
2013
Table of
Contents
Letter from Management 01 • Key 2013 Highlights 03 • A View from the Boardroom 04 • WSFS Franchise 06
Board of Directors & Senior Leadership Team 08 • Form 10-K & Stockholder Information IBC
46882.0
37505.6
28129.2
18752.8
9376.4
0.0
5.060000
4.216667
3.373333
2.530000
1.686667
0.843333
0.000000
1.070000
0.891667
0.713333
0.535000
0.356667
0.178333
0.000000
13.60
10.88
8.16
5.44
2.72
0.00
wing cuStomer aDv
o
r
g
o
c
a
teS
Forward-Looking
Statements
This annual report contains estimates, predictions, opinions, projections and other “forward-looking statements” as that phrase is defined in the Private Securities Litigation Reform Act
of 1995. Such statements include, without limitation, references to the Company’s financial goals, management’s plans and objectives for future operations, financial and business
trends, business prospects, and management’s outlook or expectations for earnings, revenues, expenses, capital levels, liquidity levels, asset quality or other future financial or
business performance, strategies or expectations. Such forward-looking statements are based on various assumptions (some of which may be beyond the Company’s control) and
are subject to risks and uncertainties (which change over time) and other factors which could cause actual results to differ materially from those currently anticipated. Such risks
and uncertainties include, but are not limited to, those related to the economic environment, particularly in the market areas in which the Company operates, including an increase
in unemployment levels; the volatility of the financial and securities markets, including changes with respect to the market value of financial assets; changes in market interest rates
may increase funding costs and reduce earning asset yields thus reducing margin; increases in benchmark rates would increase debt service requirements for customers whose
terms include a variable interest rate, which may negatively impact the ability of borrowers to pay as contractually obligated; changes in government regulation affecting financial
institutions, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules being issued in accordance with this statute and potential expenses and
elevated capital levels associated therewith; possible additional loan losses and impairment of the collectability of loans; seasonality, which may impact customers, such as
construction-related businesses, the availability of public funds, and certain types of the Company’s fee revenue, such as mortgage originations; possible changes in trade, monetary
and fiscal policies, laws and regulations and other activities of governments, agencies, and similar organizations, may have an adverse effect on business; possible rules and regulations
issued by the Consumer Financial Protection Bureau or other regulators which might adversely impact our business model or products and services; possible stresses in the real
estate markets, including possible continued deterioration in property values that affect the collateral value of underlying real estate loans; the Company’s ability to expand into
new markets, develop competitive new products and services in a timely manner and to maintain profit margins in the face of competitive pressures; possible changes in consumer
and business spending and savings habits could affect the Company’s ability to increase assets and to attract deposits; the Company’s ability to effectively manage credit risk,
interest rate risk market risk, operational risk, legal risk, liquidity risk, reputational risk, and regulatory and compliance risk; the effects of increased competition from both banks and
non-banks; the effects of geopolitical instability and risks such as terrorist attacks; the effects of weather and natural disasters such as floods, droughts, wind, tornadoes and
hurricanes, and the effects of man-made disasters; possible changes in the speed of loan prepayments by the Company’s customers and loan origination or sales volumes; possible
acceleration of prepayments of mortgage-backed securities due to low interest rates, and the related acceleration of premium amortization on prepayments on mortgage-backed
securities due to low interest rates; and the costs associated with resolving any problem loans, litigation and other risks and uncertainties, discussed in the Company’s Form 10-K
for the year ended December 31, 2013 and other documents filed by the Company with the Securities and Exchange Commission from time to time. Forward looking statements are
as of the date they are made, and the Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or
on behalf of the Company.
Stockholder
Information
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
stockholderrelations@wsfsbank.com
Transfer Agent
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Website
wsfsbank.com
©2014 WSFS Financial Corporation. All rights reserved.
WSFS Bank Center • 500 Delaware Avenue, Wilmington, DE 19801 • wsfsbank.com
Transfer is a related abstract and title company.
variety of residential mortgage and refinancing solutions, and Arrow Land
is a leading Delaware Valley mortgage banking company, specializing in a
style focused on preservation of capital and current income. Array Financial
market segment of high net worth individuals offering a balanced investment
Capital Management, LLC is a registered investment advisor with a primary
and brokerage products primarily to our retail banking clients. Cypress
and institutional clients. WSFS Investment Group, Inc. provides insurance
trustee, agency, custodial and commercial domicile services to corporate
provides fiduciary and investment services to personal trust clients, and
which has the largest branded ATM network in Delaware. Christiana Trust
in the United States and operates more than 450 ATMs for WSFS Bank,
Cash Connect® is a premier provider of ATM vault cash and related services
Other subsidiaries or divisions of WSFS Financial Corporation include:
bank in the United States continuously operating under the same name.
Serving the Delaware Valley since 1832, WSFS Bank is the seventh oldest
and wealth management.
financial services including commercial banking, retail banking and trust
in Delaware, Pennsylvania, Virginia and Nevada, and provides comprehensive
and trust company headquartered in Delaware. WSFS has 52 offices located
Its principal subsidiary, WSFS Bank, is the oldest, locally managed bank
WSFS Financial Corporation is a multi-billion dollar financial services company.
e
ic
v
r
e
S
r
a
l
l
e
t
S
g
n
i
r
e
v
i
l
e
D
a
n
D
v
a
l
u
e
f
o
r
o
u
r
o
w
n
erS
ngageD aSSociateS
e
WSFS Financial Corporation
About
Annual Report
2013
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
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 19801
(Address of Principal Executive Offices) (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
6.25% Senior Notes Due 2019
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 È
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 È
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 È 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 È 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 ‘
Non-accelerated filer ‘
È
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 È
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, 2013 was $451,284,893. 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 6, 2014, there were issued and outstanding 8,911,334 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 24, 2014 are incorporated by
reference in Part III hereof.
WSFS FINANCIAL CORPORATION
TABLE OF CONTENTS
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
Part I
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits, Financial Statement Schedules Signatures
Signatures
Part IV
Page
1
20
28
29
33
33
33
35
36
51
53
107
107
110
110
110
110
111
111
111
114
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, and exhibits thereto, contains estimates, predictions, opinions, projections and other
statements that may be interpreted as “forward-looking statements” as that phrase is defined in the Private Securities
limitation, references to our financial goals,
Litigation Reform Act of 1995. Such statements include, without
management’s plans and objectives for future operations, financial and business trends, business prospects, and
management’s outlook or expectations for earnings, revenues, expenses, capital levels, liquidity levels, asset quality or
other future financial or business performance, strategies or expectations. The words “anticipates,” “intends,” “seeks,”
“believes,” “estimates,” “expects,” “projects,” “forecast,” “will,” “may,” “could,” “should,” “would,” “can” and similar
expressions often signify forward-looking statements. Such forward-looking statements are based on various assumptions
(some of which may be beyond our control) and are subject to risks and uncertainties (which change over time) and other
factors which could cause actual results to differ materially from those currently anticipated. Such risks and uncertainties
include, but are not limited to:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
difficult market conditions and unfavorable economic trends in the United States generally, and particularly in
the market areas in which we operate and in which our loans are concentrated, including the effects of declines
in housing markets, elevated unemployment levels and slowdowns in economic growth;
our level of nonperforming assets and the costs associated with resolving any problem loans;
changes in market interest rates which may increase funding costs and reduce earning asset yields thus reducing
margin;
the impact of changes in interest rates and the credit quality and strength of underlying collateral and the effect
of such changes on the market value of our investment securities portfolio;
the credit risk associated with the substantial amount of commercial real estate, construction and land
development, and commercial and industrial loans in our loan portfolio;
possible additional loan losses and impairment of the collectability of loans;
the extensive state and federal regulation, supervision and examination governing almost all aspects of our
operations;
changes in government regulation affecting financial institutions, including the Dodd-Frank Wall Street Reform
and Consumer Protection Act (the “Dodd-Frank Act”) and the rules and regulations being issued in accordance
with this statute and potential expenses associated therewith;
possible changes in trade, monetary and fiscal policies, laws and regulations and other activities of governments,
agencies, and similar organizations;
any impairment of our goodwill or other intangible assets;
failure of the financial and operational controls of our Cash Connect division;
the effects of problems encountered by other financial institutions that adversely affect us or the banking
industry generally;
the success of our growth plans, including the successful integration of past and future acquisitions;
conditions in the financial markets may limit our access to additional funding to meet our liquidity needs;
our ability to comply with applicable capital and liquidity requirements (including the finalized Basel III capital
standards), including our ability to generate liquidity internally or raise capital on favorable terms;
negative perceptions or publicity with respect to our trust and wealth management business;
system failure or cybersecurity breaches of our network security;
our ability to recruit and retain key employees;
ii
•
•
regulatory limits on our ability to receive dividends from our subsidiaries; and
the effects of any damage to our reputation resulting from developments related to any of the items identified
above.
Such risks and uncertainties are discussed herein, including under the heading “Risk Factors,” and in other documents
filed by us with the Securities and Exchange Commission from time to time. Forward looking statements are as of the date
they are made, and we do not undertake to update any forward-looking statement, whether written or oral, that may be
made from time to time by or on behalf of us.
iii
[THIS PAGE INTENTIONALLY LEFT BLANK]
ITEM 1. BUSINESS
OUR BUSINESS
PART I
WSFS Financial Corporation (“WSFS,” the “Company” or “we”) is parent to Wilmington Savings Fund Society,
FSB (“WSFS Bank” or the “Bank”), the seventh oldest bank and trust company in the United States continuously
operating under the same name. A fixture in Delaware and contiguous areas of neighboring states, WSFS Bank has been
in operation for 182 years. In addition to its focus on stellar customer service, the Bank has continued to fuel growth and
remain a leader in our community. We are a relationship-focused, locally-managed, community banking institution that
has grown to become the largest independent bank or thrift holding company headquartered and operating in the State of
Delaware, one of the top commercial lenders in the state, the third largest bank in terms of Delaware deposits and among
the top trust companies in the country. For the eighth consecutive year, our Associates (what we call our employees)
ranked us a “Top Workplace” in Delaware and for the third year in a row the readers of the Delaware News Journal voted
us the “Top Bank” in the state. We state our mission simply: We Stand For Service.
Our core banking business is commercial lending funded by customer-generated deposits. We have built a $2.4 billion
commercial loan portfolio by recruiting the best seasoned commercial lenders in our markets and by offering the 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 52 offices located in Delaware (42), Pennsylvania (8),
Virginia (1) and Nevada (1). We also offer a broad variety of consumer loan products, retail securities and insurance
brokerage services through our retail branches and mortgage and title services through those branches and through
Pennsylvania-based Array Financial Group, Inc., and Arrow Land Transfer Company, which we acquired in 2013.
We offer trust and wealth management services through Christiana Trust, Cypress Capital Management, LLC
(Cypress), WSFS Investment Group brokerage and our Private Banking group. The Christiana Trust division of WSFS
Bank provides investment, fiduciary, agency and commercial domicile services from locations in Delaware and Nevada
and has $8.9 billion in assets under administration. These services are provided to individuals and families as well as
locally, nationally and
corporations and institutions. Christiana Trust provides
internationally. Cypress is an investment advisory firm that manages more than $600 million of portfolios for individuals,
trusts, retirement plans and endowments. WSFS Investment Group, Inc. markets various investment and insurance
products through the Bank’s retail banking system. Our Private Banking group offers credit and deposit products to high
net-worth individuals, and partners with our other wealth management units to offer the most appropriate fee-based
products to these clients.
these services
to customers
Our Cash Connect division is a premier provider of ATM Vault Cash and related services in the United States. Cash
Connect manages more than $476 million in vault cash in more than 15,000 ATMs nationwide. They also provide online
reporting and ATM cash management, predictive cash ordering, armored carrier management, ATM processing and
equipment sales. Cash Connect also operates over 450 ATMs for WSFS Bank. This is, by far, the largest branded ATM
network in Delaware.
We announced late in 2013 that we entered into an Agreement to merge with First Wyoming Financial Corporation.
Following the merger, The First National Bank of Wyoming (FNB of Wyoming), the wholly owned subsidiary of First
Wyoming Financial Corporation, will be merged with and into WSFS Bank. FNB of Wyoming reported approximately
$307.7 million in assets and $249.7 million in deposits as of September 30, 2013 and serves its customers from six branch
locations. The merger is subject to approval by First Wyoming Financial Corporation shareholders, regulatory approval
and other customary closing conditions.
WSFS POINTS OF DIFFERENTIATION
While all banks offer similar products and services, we believe that WSFS, through its service model, has set itself
apart from other banks in our market and the industry in general. In addition, community banks such as WSFS have been
1
able to distinguish themselves from large national or international banks that fail to provide their customers with the
service levels, responsiveness and local decision making they prefer. The following factors summarize what we believe
are our 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 growing Customer Advocates and value for our Owners”. 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 recruitment, 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 with Stellar Service experiences. As a result, we build Customer
Advocates, or Customers who have developed an emotional attachment to the Bank. Research studies continue to show a
direct link between Associate engagement, customer advocacy and a company’s financial performance. Our success with this
strategy creates a virtuous cycle, further building an environment of engagement and advocacy.
Surveys conducted for us by Gallup, Inc. indicate:
• Our Associate Engagement scores consistently rank in the top quartile of companies polled. In 2013 our engagement
ratio was 10.8:1, which means there were 10.8 engaged Associates for every disengaged Associate. This compares to
a 2.6:1 ratio in 2003 and a national average of 1.53:1. Gallup, Inc. defines “world-class” as 11.7:1.
• Our customer advocacy scores rank in the top 11% of all companies. In 2013, 44% of our customers ranked us a
“five” out of “five,” strongly agreeing with the statement “I can’t imagine a world without WSFS” and nearly
69% of our customers ranked us a “five” out of “five,” strongly agreeing with the statement “WSFS is the
perfect bank for me.”
By fostering a culture of engaged and empowered Associates, we believe we have become the employer and bank of
choice in our market. In 2013, for the fifth year in a row, we were recognized by The Wilmington News Journal as a “Top
Work Place” for large corporations in the State of Delaware. Also in 2013, and for the third consecutive year, a News Journal
survey of its readers also ranked us the “Top Bank” in Delaware, indicating the strength of our focus on customer service.
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:
•
Small enough to offer Customers responsive, personalized service and direct access to decision makers.
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 branches and other service outlets. Additionally, it frustrates bank
employees who are no longer empowered to provide good and timely service to their customers.
WSFS Bank offers:
• One primary point of contact. Each of our relationship managers is responsible for understanding his or her
Customers’ needs and bringing together the right resources in the Bank to meet those needs.
• A customized approach to our Customers. We believe this gives us an advantage over our competitors who are
too large or centralized to offer customized products or services.
•
Products and services that our Customers value. This includes a broad array of banking, cash management and
trust and wealth management products, as well as a legal lending limit high enough to meet the credit needs of
our Customers, especially as they grow.
• 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, legal, tax
and business environment. Additionally, Delaware is one of only nine states with a AAA bond rating from the three
predominant rating agencies. Delaware’s rate of unemployment, median household income and rate of population growth
all compare favorably to national averages.
(Most recent available statistics)
Unemployment (For December 2013) (1)
Median Household Income (2008-2012) (2)
Population Growth (2010-2013) (3)
Delaware
National
Average
6.2%
6.7%
$60,119
$53,046
3.1%
2.4%
(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
Balance Sheet Management
We put a great deal of focus on actively managing our balance sheet. This manifests itself in:
•
Prudent capital levels. Maintaining prudent capital levels is key to our operating philosophy. At December 31,
2013, our tangible common equity ratio was 7.69%. All regulatory capital levels for WSFS Bank maintained a
meaningful cushion above well-capitalized levels. WSFS Bank’s Tier 1 capital ratio was 13.16% as of
December 31, 2013, more than $250 million in excess of the 6% “well-capitalized” level, and our total risk-
based capital ratio was 14.36%, more than $151 million above the “well-capitalized” level of 10.00%.
• Disciplined Lending. We maintain discipline in our lending with a particular focus on portfolio diversification
and granularity. Diversification includes limits on loans to one borrower as well as industry and product
concentrations. We supplement this portfolio diversification with a disciplined underwriting process and the
benefit of knowing our customers. We have also taken a proactive approach to identifying trends in our local
economy and have responded to areas of concern. As a result we improved all criticized, classified and
nonperforming loans to 29.7% of Tier 1 capital plus Allowance for Loan Losses (“ALLL”) from 52.5% at
December 31, 2012. We diversify 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.
3
•
Focus on credit quality. We seek to control 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 marginal income and
tax relief. Our philosophy and pre-purchase due diligence has allowed us to avoid the significant investment
write-downs taken by many of our bank peers during the recent economic downturn (only $86,000 of other-
than-temporary impairment charges recorded during this economic cycle).
Disciplined Capital Management
We understand that our capital (or stockholders’ equity) belongs to our stockholders. They have entrusted this capital
to us with the expectation that it will earn an appropriate return relative to the risk we take. Mindful of this balance, we
prudently, but aggressively, manage our capital.
Strong Performance Expectations and Alignment with Stockholder Priorities
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 tangible common equity (ROTCE) and earnings per share (EPS)
growth. Management incentives are, in large part, based on driving performance in these areas. More details on
management incentive plans are included in our proxy statement.
Following a period of strong investment in and building of our company from 2009 to 2011, we turned our focus to
optimizing these ample investments and growing our bottom line, while continuing to improve asset quality. Our
investment phase provides a platform for significant growth of our franchise through both our core banking and fee-based
businesses and an opportunity to leverage investment to bottom line results for our stockholders.
During 2013, our performance reflected the early stages of this harvesting phase. In 2013, fully diluted earnings per
share grew 56% from prior year levels. WSFS reported ROA of 1.07% and core ROA exceeding 1% for the year, and
improving during the year so that core ROA stood at 1.05% in the final quarter of 2013.
Growth
Our successful long-term trend in lending and deposit gathering, along with the success of our Wealth Management
Group at growing assets under administration and Cash Connect at growing its customer base and customer cross-sell, has
been the result of a focused strategy that provides service, responsiveness and careful execution in a consolidating
marketplace. We plan to continue to grow by:
• Developing talented, service-minded Associates. We have successfully recruited Associates with strong ties to,
and the passion to serve, their communities to enhance our service in existing markets and to provide a strong
start in new communities. We also focus efforts on developing talent and leadership from our current Associate
base to better equip those Associates for their jobs and prepare them for leadership roles at WSFS.
• Embracing the Human Sigma concept. We are committed to building Associate Engagement and Customer
Advocacy as a way to differentiate ourselves and grow our franchise.
• Developing new products through innovation and utilization of new technologies.
• Continuing strong growth in commercial lending by:
• Offering local decision-making by seasoned banking professionals.
• Executing our community banking model that combines Stellar Service with the banking products and
services our business customers demand.
• Adding seasoned lending professionals that have helped us win customers in our Delaware and
southeastern Pennsylvania markets.
• Aggressively growing deposits. We have energized our retail branch strategy by combining Stellar Service with
an expanded and updated branch network. We plan to continue to grow deposits by:
• Offering products through an expanded and updated branch network.
•
Providing a Stellar Service experience to our Customers.
4
•
•
•
Further expanding our commercial Customer relationships with deposit and cash management products.
Finding creative ways to build deposit market share such as targeted marketing programs.
Selectively opening new branches, including in preferred southeastern Pennsylvania locations.
•
Seeking strategic acquisitions. In 2013 we completed the acquisition of Array and Arrow, doubling our
mortgage originations and leveraging our investments in southeastern Pennsylvania. Additionally, in November,
we announced that we had entered a definitive agreement to merge with First Wyoming Financial Corporation,
pursuant to which the First National Bank of Wyoming (DE) (“First Wyoming”) the wholly owned subsidiary of
First Wyoming Financial Corporation, will merge with and into our Bank. We believe the merger will enhance
our franchise in Kent County, Delaware, diversifying our revenues and improving core funding and liquidity.
The First Wyoming merger is subject to customary closing conditions, including regulatory approval, and we
expect to close this transaction in the third quarter of 2014. Both acquisitions are strategic for our company and
financially attractive with earnings accretion expected in the first year following the acquisition. Over the next
several years we expect our growth will be approximately 80% organic and 20% through acquisition, although
each year’s growth will reflect the opportunities available to us at the time.
• Exploring new niche businesses and continuing to expand existing niche businesses such as Cash Connect. We
are an organization with an entrepreneurial spirit and are open to the risk/reward proposition that comes with
such businesses.
Innovation
Our organization is committed to product and service innovation as a means to drive growth and to stay ahead of
changing customer demands and emerging competition. Our organization has a focus on developing a strong “culture of
innovation” that solicits, captures, prioritizes, and executes innovation initiatives, from product creation to process
improvements. We intend to leverage technology and innovation to grow our business and to successfully execute on our
strategy.
Values
Our values address 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 every day.
At WSFS we:
• Do the right thing.
•
Serve others.
• Are open and candid.
• Grow and improve.
Results
Our focus on these points of differentiation has allowed us to grow our core franchise and build value for our
stockholders. Since 2008, our commercial loans have grown from $1.6 billion to $2.4 billion, a strong 7% compound
annual growth rate (CAGR). Over the same period, customer funding has grown from $1.5 billion to $3.0 billion, a 12%
CAGR. More importantly, over the last decade, stockholder value has increased at a far greater rate than our banking
peers. An investment of $100 in WSFS stock in 2003 would be worth $189 at December 31, 2013. By comparison, $100
invested in the Nasdaq Bank Index in 2003 would be worth $114 at December 31, 2013.
SUBSIDIARIES
We have two consolidated subsidiaries, WSFS Bank and Montchanin Capital Management, Inc. (“Montchanin”) and
one unconsolidated affiliate, WSFS Capital Trust III (“the Trust”).
5
WSFS Bank has two wholly owned subsidiaries, WSFS Investment Group, Inc. and Monarch Entity Services, LLC
(“Monarch”). WSFS Investment Group, Inc., markets various third-party investment and insurance products such as
single-premium annuities, whole life policies and securities, primarily through our retail banking system and directly to
the public. Monarch offers commercial domicile services which include providing employees, directors, sublease of office
facilities and registered agent services in Delaware and Nevada.
Montchanin provides asset management services and 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 with $614 million in assets under management at December 31, 2013.
The Trust is our unconsolidated subsidiary, and was formed in 2005 to issue $67.0 million aggregate principal
amount of Pooled Floating Rate Capital Securities.
In addition to the subsidiaries listed above, as of December 31, 2013 we also had one consolidated variable interest
entity (“VIE”), SASCO 2002-RM1 (“SASCO”), which is a reverse mortgage securitization trust.
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.”
CREDIT EXTENSION ACTIVITIES
Over the past several years we have focused on growing the more profitable segments of our loan portfolio. Our
current portfolio lending activity is concentrated on lending to small- to mid-sized businesses in the mid-Atlantic region of
the United States, primarily in Delaware, contiguous counties in Pennsylvania, Maryland and New Jersey as well as in
northern Virginia. Since 2009, our commercial and industrial (“C&I”) loans have increased by $476.4 million, or 43%.
Our C&I loans, including owner-occupied commercial real estate loans, accounted for approximately 55% of our loan
portfolio in 2013 compared to 45% in 2009. Based on current market conditions, we expect our focus on growing C&I
loans to continue into 2014 and beyond.
The following table shows the composition of our loan portfolio at year-end for the last five years.
Types of Loans
Commercial real estate:
Commercial mortgage
Construction
Total commercial real estate
Commercial (1)
Commercial — owner occupied (1)
Total commercial loans
Consumer loans:
Residential real estate
Consumer
Total consumer loans
Gross loans
Less:
Deferred fees (unearned income)
Allowance for loan losses
2013
2012
2011
2010
2009
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
(Dollars in Thousands)
At December 31,
$ 725,193
106,074
25.0% $ 631,365
3.6
133,375
23.2% $ 626,739
106,268
4.9
23.1% $ 625,379
140,832
3.9
24.2% $ 524,380
231,625
5.5
21.2%
9.3
831,267
810,882
786,360
2,428,509
221,520
302,234
523,754
28.6
27.9
27.1
83.6
7.6
10.4
18.0
764,740
704,491
770,581
2,239,812
243,627
289,001
532,628
28.1
25.9
28.3
82.3
8.9
10.6
19.5
733,007
1,460,812
—
2,193,819
274,105
290,979
565,084
27.0
53.9
—
80.9
10.5
10.7
21.2
766,211
1,239,102
—
2,005,313
308,857
309,722
618,579
29.7
48.1
—
77.8
12.6
12.0
24.6
756,005
1,120,807
—
1,876,812
348,873
300,648
649,521
30.5
45.2
—
75.7
14.4
12.1
26.5
$2,952,263
101.6
$2,772,440
101.8
$2,758,903
102.1
$2,623,892
102.4
$2,526,333
102.2
6,043
41,244
0.2
1.4
4,602
43,922
0.2
1.6
3,234
53,080
0.1
2.0
2,185
60,339
0.1
2.3
2,098
53,446
0.1
2.1
Net loans (2)
$2,904,976
100.0% $2,723,916
100.0% $2,702,589
100.0% $2,561,368
100.0% $2,470,789
100.0%
(1) Prior to 2012, owner occupied commercial loans were included in commercial loan balances.
(2) Excludes $31,491; $12,758; $10,185; $14,522 and $8,366 of residential mortgage loans held-for-sale at December 31, 2013, 2012, 2011, 2010, and
2009, respectively.
6
The following table shows the remaining time 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 those with fixed interest rates and those with adjustable
interest rates. The tables show loans by remaining contractual maturity. Loans may be pre-paid, so 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.
Commercial mortgage loans
Construction loans
Commercial loans
Commercial Owner Occupied loans
Residential real estate loans (1)
Consumer loans
Rate sensitivity:
Fixed
Adjustable (2)
Gross loans
(1) Excludes loans held-for-sale.
(2)
Includes hybrid adjustable-rate mortgages.
Less than
One Year
One to
Five Years
Over
Five Years
Total
$ 78,415
20,754
288,816
80,799
4,866
19,360
(In thousands)
$ 416,238
50,975
316,936
276,302
3,779
36,621
$ 230,540
34,345
205,130
429,259
212,875
246,253
$ 725,193
106,074
810,882
786,360
221,520
302,234
$493,010
$1,100,851
$1,358,402
$2,952,263
$ 63,024
429,986
$ 462,983
637,868
$ 471,060
887,342
$ 997,067
1,955,196
$493,010
$1,100,851
$1,358,402
$2,952,263
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.
Commercial, commercial mortgage and construction lending have higher levels 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, southeastern Pennsylvania (Chester and Delaware counties) and nearby areas.
We offer commercial real estate mortgage loans on multi-family properties and on other commercial real estate.
Generally, loan-to-value ratios for these loans do not exceed 80% of appraised value at origination.
Our commercial mortgage portfolio was $725.2 million at December 31, 2013. Generally, this portfolio is diversified
by property type, with no type representing more than 29% of the portfolio. The largest type is retail-related (shopping
centers, malls and other retail) with balances of $202.2 million. The average loan size of a loan in the commercial
mortgage portfolio is $773,000 and only 27 loans are greater than $5 million, with three loans greater than $10 million.
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 with automatic conversion to mini-permanent loans
(1-5 years) upon completion of construction. These construction loans are short-term, usually not exceeding two years, with
interest rates indexed to our WSFS prime rate, the “Wall Street” prime rate or London InterBank Offered Rate (“LIBOR”), in
most cases, and are adjusted periodically as these rates change. The loan appraisal process includes the same evaluation
criteria as required for permanent mortgage loans, but also takes into consideration: completed plans, specifications,
comparables and cost estimates. Prior to approval of each credit, these criteria 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 business development staff. At origination, the loan-to-value ratios for construction loans generally do not
7
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, 2013, $165.6 million was committed for construction loans,
of which $106.1 million, or less than 4% of gross loans, was outstanding. Residential construction and land development
(“CLD”), one of the hardest-hit sectors through the recent economic downturn, represented only $99.0 million, or 3%, of the
loan portfolio and 20% of Tier 1 capital (Tier 1 + ALLL). Our commercial CLD portfolio was only $25.0 million, or 1%, of
total loans, and our “land hold” loans, which are land loans not currently being developed, were only $24.0 million, or less
than 1%, of total loans, at December 31, 2013.
Commercial and industrial and owner occupied commercial loans make up the remainder of our commercial
portfolio and include loans for working capital, financing equipment and real estate acquisitions, business expansion and
other business purposes. These loans generally range in amounts of up to $25 million (with a few relationships exceeding
this level) with an average loan balance in the portfolio of $345,000 and terms ranging from less than one year to seven
years. The loans generally carry variable interest rates indexed to our WSFS prime rate, national prime rate or LIBOR. As
of December 31, 2013, our commercial and industrial and owner occupied commercial loan portfolios were $1.6 billion
and represented 55% of our total loan portfolio. These loans are diversified by industry, with no industry representing
more than 16% of the portfolio.
Federal law limits the extensions of credit to any one borrower to 15% of our unimpaired capital (approximately $76
million), or 25% if the difference is secured by 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, 2013,
no borrower had collective (relationship) outstandings exceeding these legal lending limits. Only eight commercial
relationships, when all loans related to the relationship are combined, reach outstanding balances in excess of $25.0
million.
Residential Real Estate Lending.
Generally, we originate residential first mortgage loans with loan-to-value ratios of up to 80% and require private
mortgage insurance for up to 35% 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 have
originated or purchased loans with loan-to-value ratios exceeding 80% without a private mortgage insurance requirement.
At December 31, 2013, the balance of all such loans was approximately $1.7 million.
Generally, our residential mortgage loans are underwritten and documented in accordance with standard underwriting
criteria published by the FHLMC and other secondary market participants to assure maximum eligibility for subsequent
sale in the secondary market. Typically, we sell only those loans originated specifically with the intention to sell on a
“flow” basis.
To protect the propriety of our liens, we require title insurance be obtained. We also require fire, extended coverage
casualty and flood insurance (where applicable) for properties securing residential loans. All properties securing our
residential loans 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. The change in rate for the first adjustment date could be higher than the typical limited rate change of two
percentage points at each subsequent adjustment date. Adjustments are generally based upon a margin (currently 2.75%
for U.S. Treasury index; 2.50% for LIBOR index) over the weekly average yield on U.S. Treasury securities adjusted to a
constant maturity, as published by the Federal Reserve Board.
Usually, the maximum rate on these loans is 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 adjustable-rate mortgage loans in our loan portfolio help 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
8
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. 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. 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 had no
repurchases during the years ended December 31, 2013, 2012 and 2011.
We have a limited amount of loans originated as subprime loans, $7.6 million, at December 31, 2013 (less than 0.5%
of total loans) and no negative amortizing loans or interest-only first mortgage loans.
Consumer Lending.
Our primary consumer credit products (excluding first mortgage loans) are home equity lines of credit and equity-
secured installment loans. At December 31, 2013, home equity lines of credit outstanding totaled $193.3 million and
equity-secured installment loans totaled $69.2 million. In total, these product lines represented 86.8% of total consumer
loans. Some home equity products grant a borrower credit availability of up to 100% of the appraised value (net of any
senior mortgages) of their residence. Maximum loan to value (“LTV”) limits are 89% for primary residences and 75% for
all other properties. At December 31, 2013, we had $360.2 million in total commitments for home equity lines of credit.
Home equity lines of credit offer customers potential Federal income tax advantages, the convenience of checkbook
access, revolving credit features for a portion of the life of the loan and typically are more attractive in a low interest rate
environment. Home equity lines of credit expose us to the risk that falling collateral values may leave us inadequately
secured. The risk on installment products like home equity loans is mitigated as they amortize over time.
The following table shows our consumer loans at year-end, for the last five years.
At December 31,
2013
2012
2011
2010
2009
Percent of
Total
Consumer
Loans
Amount
Percent of
Total
Consumer
Loans
Amount
Percent of
Total
Consumer
Loans
(Dollars in Thousands)
Percent of
Total
Consumer
Loans
Amount
Percent of
Total
Consumer
Loans
Amount
22.9% $ 59,091
63.9
195,936
5.4
12,408
4.4
9,197
3.4
12,369
20.4% $ 74,721
192,917
67.8
7,192
4.3
8,378
3.2
7,771
4.3
25.7% $ 82,188
205,244
66.3
6,834
2.5
7,758
2.9
7,648
2.6
26.5% $102,727
177,407
66.3
5,489
2.2
7,246
2.5
7,779
2.5
34.2%
59.0
1.8
2.4
2.6
Amount
$ 69,230
193,255
16,397
13,147
10,205
Equity secured installment loans
Home equity lines of credit
Personal loans
Unsecured lines of credit
Other
Total consumer loans
$302,234
100.0% $289,001
100.0% $290,979
100.0% $309,722
100.0% $300,648
100.0%
Loan Originations, Purchases and Sales.
We engage in traditional lending activities primarily in Delaware, southeastern Pennsylvania, and contiguous areas of
neighboring states. As a federal savings bank, however, we may originate, purchase and sell loans throughout the United
9
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.
During 2013, we originated $350.8 million of residential real estate loans. This compares to originations of $208.1
million in 2012. From time to time, we have purchased whole loans and loan participations in accordance with our
ongoing asset and liability management objectives. In both 2013 and 2012, there were no such purchases. Residential real
estate loan sales totaled $194.8 million in 2013 and $176.1 million in 2012. We sell certain newly originated mortgage
loans in the secondary market as a means of generating fee income 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, 2013, we serviced approximately $121.9 million of residential mortgage loans for others, compared
to $144.0 million at December 31, 2012. We also serviced residential mortgage loans for our own portfolio totaling
$258.9 million and $243.6 million at December 31, 2013 and 2012, 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 2013, we originated $965.6 million of commercial and commercial real estate loans compared to $901.9 million in
2012. To reduce our exposure on certain types of these loans, and/or to maintain relationships within internal lending
limits, at times we will sell a portion of our commercial loan portfolio, typically through loan participations. Commercial
loan sales totaled $4.4 million and $1.0 million in 2013 and 2012, respectively. These amounts represent gross contract
amounts and do not necessarily reflect amounts outstanding on those loans. We also periodically buy participations from
other banks. Commercial loan participation purchases totaled $23.3 million and $43.1 million in 2013 and 2012,
respectively.
Our consumer lending activity is conducted mainly through our branch offices and referrals from other parts of our
business. 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.
We offer government-insured reverse mortgages to our customers. Our activity has been limited to acting as a
correspondent originator for these loans. During 2013, we originated, and sold $3.2 million in reverse mortgages
compared to $3.6 million during 2012.
Any significant modification or additional exposure 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
reviews the minutes of the SLC meetings. The Executive Committee also approves new credit exposures exceeding $10
million and new credit exposures in excess of $5 million for customers with higher risk profiles, larger existing
relationship exposures, or multiple policy exceptions. Depending upon their experience and management position,
individual officers of the Bank have the authority to approve smaller loan amounts. Our credit policy includes a $25
million “House Limit” to any one borrowing relationship. In rare circumstances, we will approve exceptions to the
“House Limit”. Our policy allows for only fifteen such relationships with an aggregate exposure of 10% of Tier I Capital
plus Allowance for Loan Losses (“ALLL”). Currently, we have eight relationships exceeding this limit. At December 31,
2013, the aggregate exposure over “House Limit” totaled 11.62% of Tier I Capital plus ALLL. Those eight relationships
were approved to exceed the “House Limit” because the credit profile was deemed strong, or because of a long
relationship history with the borrower(s).
During the third quarter of 2013, we obtained the right to execute a clean-up call on the underlying collateral of a
reverse mortgage securitization. This event triggered a consolidation of the assets and liabilities of the securitization trust
on our balance sheet in accordance with ASC 810-05-9, Consolidation of VIEs, which describes how to determine when a
reporting entity should include the assets, liabilities, noncontrolling interest, and results of activities of a VIE in its
consolidated financial statements. As a result, we consolidated $40.5 million of reverse mortgage loans, as well as other
assets and liabilities. Our existing investment in reverse mortgages was combined with the consolidated reverse mortgage
loans for a total of $37.3 million at December 31, 2013. See Note 6 to the Consolidated Financial Statements for more
information on these loans.
10
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. In addition, 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 our consolidated statements of operations immediately, but are deferred as
adjustments to yield in accordance with U.S. generally accepted accounting principles (“GAAP”), and are reflected in
interest income over the expected life of the loan. Those fees represented interest income of $2.5 million, $2.1 million,
and $1.2 million during 2013, 2012, and 2011, respectively. Loan fee income was mainly due to fee accretion on new and
existing loans (including the acceleration of the accretion on loans that paid early), loan growth and prepayment penalties.
The overall increase in loan fee income was the result of the growth in certain loan categories during 2013 and 2012.
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 our opinion,
collection is doubtful, or when principal or interest is past due 90 days and collateral is insufficient to cover principal and
interest payments. 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 accretion 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 our 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 Loan Administration and Risk Management Department monitors the asset
quality of our loans and investments in real estate portfolios and reports such information to the Credit Policy, Audit and
Executive Committees 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, Asset/Liability Committee and
Investment Committee. Historically, we have had success in growing our loan portfolio. For example, during the year
ended December 31, 2013, net loan growth resulted in the use of $207.0 million in cash. The loan growth was primarily
due to our continued success increasing corporate and small business lending. We expect this trend to continue. As a
result of increased deposit growth, our loan-to-total customer funding ratio at December 31, 2013 was 98%, exceeding our
2013 strategic goal of 100%. We have significant experience managing our funding needs through both borrowings and
deposit growth.
As a financial institution, we have access to several sources of funding. Among these are:
• Deposit growth
• Brokered deposits
• Borrowing from the Federal Home Loan Bank (“FHLB”)
•
Federal Reserve Discount Window access
• Other borrowings such as repurchase agreements
• Cash flow from securities and loan sales and repayments
• Net income
Our branch expansion and renovation program has been focused on expanding our retail footprint in Delaware and
southeastern Pennsylvania and attracting new customers in part to provide additional deposit growth. However, in recent
11
years we have purposefully reduced reliance on higher-cost, typically single-service certificate of deposit (CD) accounts.
Core customer deposit growth (deposits excluding CDs) was strong, equaling $67.0 million, or 3%, during 2013.
Deposits. WSFS is the largest independent full-service bank and trust institution headquartered and operating in
Delaware. The Bank primarily attracts deposits through its retail branch offices and loan production offices, in Delaware’s
New Castle, Sussex and Kent Counties, as well as nearby southeastern Pennsylvania and Annandale, Virginia.
We offer various deposit products to our customers, including savings accounts, demand deposits, interest-bearing
demand deposits, money market deposit accounts and certificates of deposit. In addition, we accept “jumbo” certificates
of deposit with balances in excess of $100,000 from individuals, businesses and municipalities in Delaware.
The following table shows the maturities of certificates of deposit of $100,000 or more as of December 31, 2013:
Maturity Period
Less than 3 months
Over 3 months to 6 months
Over 6 months to 12 months
Over 12 months
December 31,
2013
(In Thousands)
$ 93,486
39,141
29,990
58,528
$221,145
Federal Home Loan Bank Advances
As a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”), we are able to obtain FHLB advances. At
December 31, 2013, we had $638.1 million in FHLB advances with a weighted average rate of 0.30%. Outstanding
advances from the FHLB had rates ranging from 0.16% to 1.52% at December 31, 2013. 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 purchase and hold shares of
capital stock in the FHLB in an amount at least equal to 4.60% of our borrowings from them, plus 0.35% of our member
asset value. As of December 31, 2013, our FHLB stock investment totaled $35.9 million.
We received no dividends from the FHLB during 2012 or 2011. However, in February 2012, the FHLB declared and
began to pay a dividend on capital stock. For additional information regarding FHLB Stock, see Note 10 to the
Consolidated Financial Statements.
The FHLB is rated AA+, has a very high degree of government support and was in compliance with all regulatory
capital requirements as of December 31, 2013. Based on these and other factors, we have determined there was no other-
than-temporary impairment related to our FHLB stock investment as of December 31, 2013.
Trust Preferred Borrowings
In 2005, the Trust 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 with a scheduled maturity of June 1, 2035.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
During 2013 and 2012, we purchased federal funds as a short-term funding source. At December 31, 2013, we had
purchased $72.0 million in federal funds at an average rate of 0.28%, compared to $85.0 million in federal funds at a rate
of 0.27% at December 31, 2012.
During 2013, we sold securities under agreements to repurchase as a funding source. At both December 31, 2013 and
2012, we had sold $25.0 million of securities sold under agreements to repurchase with a fixed rate of 2.98% and a
scheduled maturity of January 1, 2015. The underlying securities were MBS with a book value of $33.6 million as of
December 31, 2013.
12
Temporary Liquidity Guarantee Program Debt
In 2008, the Federal Deposit Insurance Corporation (“FDIC”) announced the Temporary Liquidity Guarantee
Program (“TLGP”), to strengthen confidence and encourage liquidity in the banking system by guaranteeing newly issued
senior unsecured debt of banks, thrifts and certain holding companies, and by providing full coverage of non-interest
bearing deposit transaction accounts, regardless of dollar amount. In 2009, we completed an offering of $30.0 million of
qualifying senior bank notes covered by the TLGP. These borrowings matured and were repaid in February 2012.
Senior Debt
In 2012, we issued and sold $55.0 million in aggregate principal amount of 6.25% Senior Notes due 2019 (the
“Senior Debt”). The Senior Debt is an unsecured senior debt obligation and ranks equally with all of our other present and
future unsecured, unsubordinated obligations. The Senior Debt is effectively subordinated to our secured indebtedness and
structurally subordinated to the indebtedness of our subsidiaries. Interest payments on the Senior Debt are due quarterly in
arrears on March 1, June 1, September 1 and December 1 of each year. At our option, the Senior Debt is callable, in whole
or in part, after 5 years at a price equal to the outstanding principal amount to be redeemed plus accrued and unpaid
interest. The Senior Debt matures on September 1, 2019.
Reverse Mortgage Trust Bonds Payable
In conjunction with the aggregation of reverse mortgage related assets through the consolidation of a reverse
mortgage securitization, mentioned earlier, we have also recognized the securitization bonds on our balance sheet. The
bonds have a value of $21.9 million and carry a rate of 0.88%. We completed the legal call of the bonds on January 27,
2014.
PERSONNEL
As of December 31, 2013, we had 762 full-time equivalent Associates (employees). Our Associates are not
represented by a collective bargaining unit. We believe our relationship with our Associates is very good, as evidenced by
being named a “Top Workplace” by an independent survey of our Associates for the last eight years.
REGULATION
Overview
We are subject to extensive federal and state banking laws, regulations, and policies that are intended primarily for
the protection of depositors, the FDIC’s Deposit Insurance Fund, and the banking system as a whole, not for the protection
of our other creditors and stockholders. Historically, we and the bank have been examined, supervised and regulated
primarily by the Office of Thrift Supervision (“OTS”). Effective July 21, 2011, portions of the OTS were merged into the
Office of the Comptroller of the Currency (“OCC”) and the Federal Reserve. The OCC became the Bank’s primary
regulator and the Federal Reserve became the Company’s primary regulator.
The statutes enforced by, and regulations and policies of, these agencies affect most aspects of our business,
including prescribing permissible types of loans and investments, the amount of required reserves, requirements for
branch offices, the permissible scope of our activities and various other requirements.
Our deposits are insured by the FDIC to the fullest extent allowed by law. As an insurer of bank deposits, the FDIC
promulgates regulations, conducts examinations, requires the filing of reports and generally supervises the operations of
all institutions to which it provides deposit insurance.
Financial Reform Legislation
Proposals to change the laws and regulations governing the banking industry are frequently introduced in Congress,
in the state legislatures and before the various bank regulatory agencies.
In 2010, the President signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-
Frank Act”). The Dodd-Frank Act imposed new restrictions and an expanded framework of regulatory oversight for
13
financial institutions, including depository institutions. The new law also established an independent federal consumer
protection bureau within the Federal Reserve. The following discussion summarizes significant aspects of the new law
that may affect us. Certain significant implementing regulations have not been finalized and therefore we cannot yet
determine the full impact on our business and operations.
The following aspects of the Dodd-Frank Act are related to the operations of our Bank:
• The OTS was merged into the OCC and the Federal Reserve and the federal savings association charter has been
preserved under OCC jurisdiction.
• An independent Consumer Financial Protection Bureau has been established within the Federal Reserve,
empowered to exercise broad regulatory, supervisory and enforcement authority with respect to both new and
existing consumer financial protection laws. Depository institutions of less than $10 billion in total assets, like
our Bank, are subject to the supervision and enforcement of their primary federal banking regulator with respect
to the federal consumer financial protection laws.
• Tier 1 capital treatment for “hybrid” capital items like trust preferred securities is eliminated, subject to various
grandfathering and transition rules. Our trust preferred securities are currently grandfathered, but may not
remain grandfathered under this legislation.
• The prohibition on payment of interest on demand deposits has been repealed.
•
Field preemption of state laws applied to federal savings associations has been repealed. Now, state law is
preempted with respect to federal savings associations to the same extent such laws would be preempted with
respect to a national bank, that is, whenever the state law has a discriminatory intent or effect on a federal
savings association compared to state-chartered institutions; the state law prevents or significantly interferes
with a federal savings association’s federal powers; or the state law is preempted by a federal law other than the
Home Owners Loan Act. The OCC must make a preemption determination on a case-by-case basis with respect
to a particular state law or other state law with substantively equivalent terms. In addition, state laws are no
longer preempted with respect to the activities of a federal savings association’s subsidiaries.
• Deposit insurance had been permanently increased to $250,000 and unlimited deposit insurance for noninterest-
bearing transaction accounts expired on December 31, 2012.
• The deposit insurance assessment base has been changed to equal a depository institution’s total consolidated
assets minus the sum of its average tangible equity during the assessment period.
• The minimum reserve ratio of the Deposit Insurance Fund increased to 1.35% of estimated annual insured
deposits or assessment base. However, the FDIC was directed to offset the effect of the increased reserve ratio
for insured depository institutions with total consolidated assets of less than $10 billion.
The following aspects of the Dodd-Frank Act are related to the operations of our Company:
• Authority over savings and loan holding companies has been transferred to the Federal Reserve.
• Leverage capital requirements and risk-based capital requirements applicable to depository institutions and bank
holding companies have been extended to savings and loan holding companies following a five year grace
period.
• The Federal Deposit Insurance Act (“FDIA”) was amended to direct federal regulators to require depository
institution holding companies to serve as a source of strength for their depository institution subsidiaries.
• The Federal Reserve can require a grandfathered unitary savings and loan holding company that conducts
commercial or manufacturing activities or other nonfinancial activities in addition to financial activities to
conduct all or part of its financial activities in an intermediate savings and loan holding company. The Federal
Reserve is required to promulgate rules setting forth the criteria for when a grandfathered unitary savings and
loan holding company would be required to establish an intermediate holding company, but to date it has not yet
proposed any such rules.
•
Public companies will be required to provide their shareholders with a nonbinding vote (i) at least once every
three years on the compensation paid to executive officers, and (ii) at least once every six years on whether they
should have a “say on pay” vote every one, two or three years.
14
• Additional provisions, including some not specifically aimed at savings associations and savings and loan
holding companies, nonetheless may have an impact on us.
Some of these provisions have the consequence of increasing our expenses, decreasing our revenues, and changing
the activities in which we choose to engage. We expect that the Dodd-Frank Act will continue to increase our operating
and compliance costs. Specific impacts of the Dodd-Frank Act on our current activities or new financial activities will
become evident in the future, and our financial performance and the markets in which we operate will continue to depend
on the manner in which the relevant agencies develop and implement the required rules and the reaction of market
participants to these regulatory developments. Many aspects of the Dodd-Frank Act continue to be subject to rulemaking
and will take effect over several years, making it difficult to anticipate the overall financial impact on us, our customers,
or the financial industry in general.
RECENT LEGISLATION
In July 2013, the Board of Governors of the Federal Reserve System, FDIC and the OCC approved final rules (the
“Final Capital Rules”) implementing revised capital rules to reflect the requirements of the Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and the Basel III international capital standards.
Among other things, the Final Capital Rules establish a new capital ratio of common equity Tier 1 capital of 4.5% and a
common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets; increase the minimum ratio of Tier 1
capital ratio from 4% to 6% and include a minimum leverage ratio of 4%; place an emphasis on common equity Tier 1
capital and implement the Dodd-Frank Act phase-out of certain instruments from Tier 1 capital; and change the risk
weights assigned to certain assets. Failure to meet these standards would result in limitations on capital distributions as
well as executive bonuses. The Final Capital Rules will be applicable to us on January 1, 2015 with conservation buffers
phasing in over the subsequent 5 years.
While it is still too early to fully analyze the impact of all aspects of the new regulatory guidance, we currently have
strong capital levels and are significantly above well-capitalized levels under the current guidelines.
On July 31, 2013, a Federal District Court judge ruled that the Federal Reserve inflated debit interchange fees when
implementing the Durbin amendment of the Dodd-Frank Act in 2011. The judge ruled that the Federal Reserve erred in
using criteria outside of the scope Congress intended to determine the fee cap, which the Federal Reserve set at 21 cents
per transaction. The judge also ruled that the network options for both signature and PIN transactions were not set
appropriately in accordance with the Dodd-Frank Act. The case is currently on appeal at the D.C. Circuit Court of
Appeals, where oral arguments were heard on January 17, 2014. If not overturned on appeal,
this ruling could
significantly affect debit fees for the banking industry and for us. However, these developments are preliminary and the
impact on us is not determinable at this time.
The many provisions of the Dodd-Frank Act are so extensive that implementation by regulators is still ongoing.
Several of the key regulations included in the original law have been delayed since the law’s passing, making an
assessment of the Dodd Frank Act’s full effect on us not possible at this time.
Regulation of the Company
General. We are a registered savings and loan holding company and are subject to the regulation, examination,
supervision and reporting requirements of the OCC.
We are also a public company subject to the reporting requirements of the United States Securities and Exchange
Commission (the “SEC”). Certain reports that we file with or furnish to the SEC, 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
free of charge on the investor relations page of our website at www.wsfsbank.com. The information on our website is not
incorporated by reference in this Annual Report on Form 10-K.
Sarbanes-Oxley Act of 2002. In July 2002, Congress enacted the Sarbanes-Oxley Act of 2002, which addresses,
among other issues, corporate governance, auditing and accounting, executive compensation, and enhanced and timely
disclosure of corporate information. Section 404 of the Sarbanes-Oxley Act, and regulations adopted by the SEC, require
15
us to include in our Annual Reports on Form 10-K a report stating management’s responsibility to establish and maintain
adequate internal controls over financial reporting and management’s conclusion on the effectiveness of the internal
controls at year end. Additionally, our independent registered public accounting firm is required to attest to and report on
management’s evaluation of internal control over financial reporting.
Restrictions on Acquisitions. Federal law generally prohibits a savings and loan holding company, without prior
regulatory approval, from acquiring control of all, or substantially all, of the assets of any other savings institution or
savings and loan holding company, or all, or substantially all, of the assets or more than 5% of the voting shares of a
savings institution or savings and loan holding company. These provisions also prohibit, among other things, any director
or officer of a savings and loan holding company, or any individual who owns or controls more than 25% of the voting
shares of such holding company, from acquiring control of any savings institution not a subsidiary of such savings and
loan holding company, unless the acquisition is approved by the Federal Reserve.
The Federal Reserve may not approve any acquisition that would result in a multiple savings and loan holding
company controlling savings institutions in more than one state, subject to two exceptions: (1) the approval of interstate
supervisory acquisitions by savings and loan holding companies; and (2) the acquisition of a savings institution in another
state if the laws of the state of the target savings institution specifically permit such acquisitions. The states vary in the
extent to which they permit interstate savings and loan holding company acquisitions.
We are a grandfathered unitary thrift holding company. Should we lose that status, we will be constrained in our
ability to acquire companies or business lines that engage in non-banking activities, and may be required to divest any
companies that we already own that engage in non-banking activities.
Safe and Sound Banking Practices. Savings and loan holding companies and their non-banking subsidiaries are
prohibited from engaging in activities that represent unsafe and unsound banking practices or that constitute violations of
laws or regulations. For example, for bank holding companies, the Federal Reserve Board’s Regulation Y requires a
holding company to give the Federal Reserve Board prior notice of any redemption or repurchase of its own equity
securities if the consideration to be paid, together with the consideration paid for any repurchases in the preceding year, is
equal to 10% or more of the company’s consolidated net worth. The Federal Reserve Board may oppose the transaction if
it believes that the transaction would constitute an unsafe or unsound practice or would violate any law or regulation. As
another example, a holding company could not impair its subsidiary bank’s soundness by causing it to make funds
available to non-banking subsidiaries or their customers if the Federal Reserve believed it not prudent to do so. The
Federal Reserve Board can assess civil money penalties for activities conducted on a knowing and reckless basis, if those
activities caused a substantial loss to a depository institution. The penalties can be as high as $1,000,000 for each day the
activity continues.
Source of Strength. In accordance with FDIA, we are expected to act as a source of financial and managerial
strength to the Bank. Under this policy, the holding company is expected to commit resources to support its bank
subsidiary, including at times when the holding company may not be in a financial position to provide it.
The Dodd-Frank Act has added additional guidance regarding the source of strength doctrine and has directed the
regulatory agencies to promulgate regulations to increase the capital requirements for holding companies to a level that
matches those of banking institutions.
Dividends. The principal source of the holding company’s cash is from dividends from the Bank. Our earnings and
activities are affected by federal, state and local laws and regulations. For example, these include limitations on the ability
of the Bank to pay dividends to the holding company and our ability to pay dividends to our stockholders. It is the policy
of the Federal Reserve Board that holding companies should pay cash dividends on common stock only out of income
available over the past year and only if prospective earnings retention is consistent with the organization’s expected future
needs and financial condition. The policy provides that holding companies should not maintain a level of cash dividends
that undermines the holding company’s ability to serve as a source of strength to its banking subsidiary. Consistent with
such policy, a banking organization should have comprehensive policies on dividend payments that clearly articulate the
organization’s objectives and approaches for maintaining a strong capital position and achieving the objectives of the
Federal Reserve Board’s policy statement. The Federal Reserve Board’s Regulation LL also requires advance notice to the
Federal Reserve Board before a bank may make a dividend payment.
16
In 2009, the Federal Reserve Board issued a supervisory letter providing greater clarity to its policy statement on the
payment of dividends by holding companies. In this letter, the Federal Reserve Board stated that when a holding
company’s board of directors is deciding on the level of dividends to declare, it should consider, among other things, the
following factors: (i) overall asset quality, potential need to increase reserves and write down assets, and concentrations of
credit; (ii) potential for unanticipated losses and declines in asset values; (iii) implicit and explicit liquidity and credit
commitments, including off-balance sheet and contingent liabilities; (iv) quality and level of current and prospective
earnings, including earnings capacity under a number of plausible economic scenarios; (v) current and prospective cash
flow and liquidity; (vi) ability to serve as an ongoing source of financial and managerial strength to depository institution
subsidiaries insured by the FDIC, including the extent of double leverage and the condition of subsidiary depository
institutions; (vii) other risks that affect the holding company’s financial condition and are not fully captured in regulatory
capital calculations; (viii) level, composition, and quality of capital; and (ix) ability to raise additional equity capital in
prevailing market and economic conditions (the “Dividend Factors”). It is particularly important for a holding company’s
board of directors to ensure that the dividend level is prudent relative to the organization’s financial position and is not
based on overly optimistic earnings scenarios. In addition, a holding company’s board of directors should strongly
consider, after careful analysis of the Dividend Factors, reducing, deferring, or eliminating dividends when the quantity
and quality of the holding company’s earnings have declined or the holding company is experiencing other financial
problems, or when the macroeconomic outlook for the holding company’s primary profit centers has deteriorated. The
Federal Reserve Board further stated that, as a general matter, a holding company should eliminate, defer or significantly
reduce its distributions if: (i) its net income available to shareholders for the past four quarters, net of dividends previously
paid during that period, is not sufficient to fully fund the dividends, (ii) its prospective rate of earnings retention is not
consistent with its capital needs and overall current and prospective financial condition, or (iii) it will not meet, or is in
danger of not meeting, its minimum regulatory capital adequacy ratios. Failure to do so could result in a supervisory
finding that the holding company is operating in an unsafe and unsound manner.
Additionally, as discussed above, the Federal Reserve Board possesses enforcement powers over savings and loan
holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound
practices, or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment
of dividends by bank and savings and loan holding companies.
Regulation of WSFS Bank
General. As a federally chartered savings institution, historically, the Bank was subject to regulation by the OTS. On
July 21, 2011, regulation of the Bank shifted to OCC. The lending activities and other investments of the Bank must
comply with various federal regulatory requirements. The OCC 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 OCC 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, with additional limitations found in Section 11 of the Home Owners’ Loan 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 commonly controlled by an affiliate or a bank or savings
association. In a holding company context, the parent holding company of a savings association (such as “the Company”)
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 several other 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
17
obligations of any affiliate, except for affiliates which are subsidiaries of the savings association. The Home Owners’
Loan Act also prohibits the Bank or its subsidiaries from purchasing shares of an affiliate that is not a subsidiary or
extending credit to an affiliate engaged in activities that are not permissible for bank holding companies.
Regulatory Capital Requirements. Under 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, and “total” capital (a
combination of core and “supplementary” capital) equal to 8% of risk-weighted assets. In addition, 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%. For
purposes of these regulations, Tier 1 capital has the same definition as core capital.
The 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, and certain non-withdrawable accounts and pledged deposits of mutual savings associations less certain
intangible assets and, subject to certain limitations, mortgage and non-mortgage servicing rights, purchased credit card
relationships and credit-enhancing interest only strips, and deferred tax assets. Tangible capital is given the same
definition as core capital but is reduced by the amount of all the savings institution’s intangible assets except for limited
amounts of mortgage servicing assets. The 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, 2013, the
Bank was in compliance with both the core and tangible capital requirements.
The risk weights assigned by the risk-based capital regulation range from 0% for cash, U.S. government securities,
and other assets to 100% for consumer and commercial loans, non-qualifying mortgage loans, 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, allowance for loan losses 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, 2013, the Bank was in compliance with the risk-based capital requirements.
Dividend Restrictions. OCC regulations govern capital distributions by savings institutions, which include cash
dividends, stock repurchases and other transactions charged to the capital account of a savings institution to make capital
distributions. A savings institution must file an application for OCC approval of the capital distribution if either (1) the
total capital distributions for the applicable calendar year exceed the sum of the institution’s net income for that year to
date plus the institution’s retained net income for the preceding two years, (2) the institution would not be at least
adequately capitalized following the distribution, (3) the distribution would violate any applicable statute, regulation,
agreement or OCC-imposed condition, or (4) the institution is not eligible for expedited treatment of its filings. If an
application is not required to be filed, savings institutions that are a subsidiary of a savings and loan holding company (as
well as certain other institutions) must still file a notice with the OCC at least 30 days before the board of directors
declares a dividend or approves a capital distribution.
An institution that either before or after a proposed capital distribution fails to meet its then-applicable minimum
capital requirement or that has been notified that it needs more than normal supervision may not make any capital
distributions without the prior written approval of the OCC. In addition, the OCC may prohibit a proposed capital
distribution, which would otherwise be permitted by OCC regulations, if the OCC determines that such distribution would
constitute an unsafe or unsound practice.
Under federal rules, an insured depository institution may not pay any dividend if payment would cause it to become
undercapitalized or if it is already undercapitalized. In addition, federal regulators have the authority to restrict or prohibit
the payment of dividends for safety and soundness reasons. The FDIC also prohibits an insured depository institution from
18
paying dividends on its capital stock or interest on its capital notes or debentures (if such interest is required to be paid
only out of net profits) or distributing any of its capital assets while it remains in default in the payment of any assessment
due the FDIC. Our Bank is currently not in default in any assessment payment to the FDIC.
Insurance of Deposit Accounts. The Bank’s deposits are insured to the maximum extent permitted by the Deposit
Insurance Fund. As insurer, the FDIC is authorized to conduct examinations of, and to require reporting by, insured
institutions. It also may prohibit any insured institution from engaging in any activity determined by regulation or order to
pose a serious threat to the FDIC. The FDIC also has the authority to initiate enforcement actions against savings
institutions, after giving the OCC an opportunity to take such action.
Pursuant to the Dodd-Frank Act, the Federal Deposit Insurance Act was amended to increase the maximum deposit
insurance amount from $100,000 to $250,000.
The FDIC has adopted a risk-based premium system that provides for quarterly assessments. In addition, all
institutions with deposits insured by the FDIC are required to pay assessments to fund interest payments on bonds issued
by the Financing Corporation, a mixed-ownership government corporation established to recapitalize the predecessor to
the Deposit Insurance Fund. These assessments will continue until the Financing Corporation bonds mature in 2019.
In 2011, the FDIC issued a final rule to implement changes to its assessment base used to determine risk-based
premiums for insured depository institutions as required under the Dodd-Frank Act and also changed the risk-based
pricing system necessitated by changes to the assessment base. These changes took effect for the quarter beginning
April 1, 2011. Under the revised system, the assessment base was changed to equal average consolidated total assets less
average tangible equity. Institutions other than large and highly complex institutions are placed in one of four risk
categories.
The FDIC assessment rates range from approximately 5 basis points to 45 basis points (depending on applicable
adjustments for unsecured debt and brokered deposits) until such time as the FDIC’s reserve ratio equals 1.15%. Once the
FDIC’s reserve ratio reaches 1.15% and the reserve ratio for the immediately prior assessment period is less than 2.0%,
the applicable assessment rates may range from 3 basis points to 30 basis points (subject to applicable adjustments for
unsecured debt and brokered deposits). If the prior assessment period is equal to or greater than 2.0% and less than 2.5%,
the assessment rates may range from 2 basis points to 28 basis points and if the prior assessment period is greater than
2.5%, the assessment rates may range from 1 basis point to 25 basis points. The minimum reserve ratio of the Deposit
Insurance Fund has increased to 1.35% of estimated annual insured deposits or assessment base, however, the FDIC is
directed to “offset the effect” of the increased reserve ratio for insured depository institutions with total consolidated
assets of less than $10 billion.
Future changes in insurance premiums could have an adverse effect on the operating expenses and results of
operations and we cannot predict what insurance assessment rates will be in the future.
The FDIC may terminate the deposit insurance of any insured depository institution, including us, if it determines
after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an
agreement with the FDIC. It also may suspend deposit insurance temporarily during the hearing process for the permanent
termination of insurance, if the institution has no tangible capital. Management is not aware of any existing circumstances
that would result in termination of our deposit insurance.
Federal Reserve System. Pursuant to regulations of the Federal Reserve, a savings institution must maintain reserves
against their transaction accounts. As of December 31, 2013, no reserves were required to be maintained on the first $12.4
million of transaction accounts, reserves of 3% were required to be maintained against the next $67.1 million of
transaction accounts and a reserve of 10% against all remaining transaction accounts. This percentage is subject to
adjustment by the Federal Reserve. 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.
19
ITEM 1A. RISK FACTORS
Investing in our securities involves risks. You should carefully consider the following risks, in addition to the other
information in this report, before deciding to invest in our securities.
Risks Related to WSFS
Difficult market conditions and unfavorable economic trends could adversely affect our industry and our business.
We are particularly exposed to downturns in the Delaware, mid-Atlantic and overall U.S. economy and housing
markets. Since 2007, declines in the housing market combined with a weak economy and elevated unemployment have
negatively impacted the credit performance of mortgage, construction and other loans and have 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. Unfavorable general economic trends, reduced availability of commercial
credit and sustained high unemployment negatively impact the credit performance of commercial and consumer credit,
resulting in increased write-downs. 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 ability
to access capital. A worsening of these conditions, such as a recession or economic slowdown, would likely exacerbate
the adverse effects of these difficult market conditions on us and others in the financial services industry. In particular, we
may face the following risks in connection with these events:
• An increase in the number of customers unable to repay their loans in accordance with the original terms, which
could result in a higher level of loan losses and provision for loan losses;
•
•
•
Impaired ability to assess the creditworthiness of customers as the models and approaches we use to select,
manage and underwrite our customers become less predictive of future performance;
Impaired ability to estimate the losses inherent in our credit exposure as the process we use, which requires
difficult, subjective and complex judgments based on forecasts of economic or market conditions that might
impair the ability of our customers to repay their loans, becomes less accurate and thus less reliable;
Increases in foreclosures, delinquencies and customer bankruptcies, as well as more restricted access to
commercial credit;
• Changes in the regulatory environment, including regulations promulgated or to be promulgated under the
Dodd-Frank Act, also could influence recognition of loan losses and our allowance for loan losses;
• Downward pressure on our stock price; and
•
Increased competition due to intensified consolidation of the financial services industry.
Significant increases of nonperforming assets from the current level, or greater than anticipated costs to resolve these
credits, will have an adverse effect on our earnings.
Our nonperforming assets (which consist of nonaccrual loans, assets acquired through foreclosure and troubled debt
restructurings), totaled $47.8 million at December 31, 2013. Our nonperforming assets adversely affect our net income in
various ways. We do not record interest income on nonaccrual loans and assets acquired through foreclosure. We must
establish an allowance for loan losses which reserves for losses inherent in the loan portfolio that are both probable and
reasonably estimable. From time to time, we also write down the value of properties in our portfolio of assets acquired
through foreclosure to reflect changing market values. Additionally, there are legal fees associated with the resolution of
problem assets as well as carrying costs such as taxes, insurance and maintenance related to assets acquired through
foreclosure. The resolution of nonperforming assets requires the active involvement of management, which can distract
management from its overall supervision of operations and other income producing activities. Finally, if our estimate of
the allowance for loan losses is inadequate, we will have to increase the allowance for loan losses accordingly, which will
have an adverse effect on our earnings.
Changes in interest rates and other factors beyond our control could have an adverse impact on our earnings.
Our operating income and net income depend to a significant extent on our net interest margin, which is the
difference between the interest yields we receive on loans, securities and other interest-earning assets and the interest rates
20
we pay on interest-bearing deposits and other liabilities. The net interest margin is affected by changes in market interest
rates, because different types of assets and liabilities may react differently, and at different times, to market interest rate
changes. When interest-bearing liabilities mature or reprice more quickly than interest-earning assets in a period, an
increase in market rates of interest could reduce net interest income. Similarly, when interest-earning assets mature or
reprice more quickly than interest-bearing liabilities, falling interest rates could reduce net interest income. These rates are
highly sensitive to many factors beyond our control, including competition, general economic conditions and monetary
and fiscal policies of various governmental regulatory agencies, including the Federal Reserve.
We attempt to manage our risk from changes in market interest rates by adjusting the rates, maturity, repricing, and
balances of the different types of interest-earning assets and interest-bearing liabilities, but interest rate risk management
techniques are not exact. As a result, a rapid increase or decrease in interest rates could have an adverse effect on our net
interest margin and results of operations. The results of our interest rate sensitivity simulation models depend upon a
number of assumptions which may prove to be not accurate. There can be no assurance that we will be able to
successfully manage our interest rate risk. Increases in market rates and adverse changes in the local residential real estate
market, the general economy or consumer confidence would likely have a significant adverse impact on our non-interest
income, as a result of reduced demand for residential mortgage loans that we pre-sell.
The market value of our investment securities portfolio may be impacted by the level of interest rates and the credit
quality and strength of the underlying collateral.
As of December 31, 2013, we owned investment securities classified as available-for-sale with an aggregate
historical cost of $850.7 million and an estimated fair value of $817.1 million. Future changes in interest rates may reduce
the market value of these and other securities.
Our net interest income varies as a result of changes in interest rates as well as changes in interest rates across the yield
curve. When interest rates are low, borrowers have an incentive to refinance into mortgages with longer initial fixed rate
periods and fixed rate mortgages, causing our securities to experience faster prepayments. Increases in prepayments on our
portfolio will cause our premium amortization to accelerate, lowering the yield on such assets. If this happens, we could
experience a decrease in interest income, which may negatively impact our results of operations and financial position.
In addition, our securities portfolio is subject to risk as a result of credit quality and the strength of the underlying
issuers or their related collateral. Any decrease in the value of the underlying collateral will likely decrease the overall
value of our securities, affecting equity and possibly impacting earnings.
Our loan portfolio includes a substantial amount of commercial real estate, construction and land development 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, commercial real estate loans and
construction and land development loans, totaled $2.4 billion at December 31, 2013, comprising 84% of net 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 adversely affect 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 portion of our commercial real estate,
construction and land development 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.
21
Concentration of loans in our primary markets may increase our risk.
Our success depends primarily on the general economic conditions and housing markets in the State of Delaware,
southeastern Pennsylvania and northern Virginia, as a large portion of our loans are to customers in these markets. This
makes us vulnerable to a downturn in the local economy and real estate markets in these areas. Declines in real estate
valuations in these markets would lower the value of the collateral securing those loans, which could cause us to realize
losses in the event of increased foreclosures. Local economic conditions have a significant impact on the ability of
borrowers to repay loans as well as our ability to originate new loans. In addition, weakening in general economic
conditions such as inflation, recession, unemployment, natural disasters or other factors beyond our control could
negatively affect demand for loans, the performance of our borrowers and 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
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 and 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 or incurred losses in our loan portfolio, resulting in additions to our
allowance. While we believe that our allowance for loan losses was appropriate at December 31, 2013, there is no
assurance that it will be sufficient to cover future loan losses, especially if there is a significant deterioration in economic
conditions. Material additions to our allowance could materially decrease our net income.
the collectability of our loan portfolio,
We are subject to extensive regulation which could have an adverse effect on our operations.
We are subject to extensive state and federal regulation, supervision and examination governing almost all aspects of
our operations. The laws and regulations governing our business are intended primarily to protect depositors, our
customers, the public, the FDIC’s Deposit Insurance Fund, and the banking system as a whole, not our noteholders or
shareholders. Since July 21, 2011, the Federal Reserve has been the primary federal regulator for the Company and the
OCC has been the Bank’s primary regulator. The banking laws, regulations and policies applicable to us govern a variety
of matters, including certain debt obligations, changes in control, maintenance of adequate capital, and general business
operations, including permissible types, amounts and terms of loans and investments, the amount of reserves held against
deposits, restrictions on dividends, establishment of new offices and the maximum interest rate that may be charged by
law. In addition, federal and state banking regulators have broad authority to supervise our banking business, including the
authority to prohibit activities that represent unsafe or unsound banking practices or constitute violations of statute, rule,
regulation or administrative order. Failure to appropriately comply with any such laws, regulations or regulatory policies
could result in sanctions by regulatory agencies, civil money penalties or damage to our reputation, all of which could
adversely affect our business, results of operations, financial condition or prospects.
We are subject to changes in federal and state banking statutes, regulations and governmental policies, and their
interpretation or implementation Regulations affecting banks and other financial institutions in particular are undergoing
continuous review and frequently change and the ultimate effect of such changes cannot be predicted. Regulations and
laws may be modified at any time, and new legislation may be enacted that will affect us. Any changes in any federal and
state law, as well as regulations and governmental policies could affect us in substantial and unpredictable ways, including
ways that may adversely affect our business, results of operations, financial condition or prospects.
Regulation of the financial services industry has increased significantly since the financial crisis. The Dodd-Frank
Act has resulted, or is likely to result, in new laws, regulations and regulatory supervisors that are expected to have an
adverse impact on our operations, particularly through increased regulatory burden and compliance costs. Specifically, as
a result of this legislation, we face the following changes, among others:
• The Office of Thrift Supervision (“OTS”) has been eliminated. The OCC became our Bank’s primary regulator
and the Federal Reserve Bank is our primary regulator.
• A new independent Consumer Financial Protection Bureau (“CFPB”) has been established within the Federal
Reserve, empowered to exercise broad regulatory, supervisory and enforcement authority with respect to both
22
new and existing consumer financial protection laws. Smaller financial institutions, like our Bank, will be
subject to the supervision and enforcement of their primary federal banking regulator with respect to the federal
consumer financial protection laws.
• Tier 1 capital treatment for “hybrid” capital items like trust preferred securities was eliminated, subject to
various grandfathering and transition rules. Our trust preferred securities are currently grandfathered, but may
not remain grandfathered under this legislation.
• Deposit insurance has been permanently increased to $250,000.
• Deposit insurance assessment base calculations equal a depository institution’s total consolidated assets minus
the sum of its average tangible equity during the assessment period.
• The minimum reserve ratio of the FDIC’s Deposit Insurance Fund increased to 1.35% of estimated annual
insured deposits or assessment base; however, the FDIC is directed to “offset the effect” of the increased reserve
ratio for insured depository institutions with total consolidated assets of less than $10 billion.
• Leverage capital requirements and risk-based capital requirements applicable to depository institutions and bank
holding companies have been extended to thrift holding companies following a five year grace period.
• The Federal Deposit Insurance Act, referred to as the FDIA, was amended to direct federal regulators to require
depository institution holding companies to serve as a source of strength for their depository institution
subsidiaries.
• The Federal Reserve can require a grandfathered unitary thrift holding company that conducts commercial or
manufacturing activities or other nonfinancial activities in addition to financial activities to conduct all or part of
its financial activities in an intermediate savings and loan holding company.
• Additional provisions, including some not specifically aimed at thrifts and thrift holding companies, that will
nonetheless have an impact on us.
Further, pursuant to the Dodd-Frank Act, the CFPB recently issued a final rule requiring mortgage lenders to make a
reasonable and good faith determination based on verified and documented information that a consumer applying for a
mortgage loan has a reasonable ability to repay the loan according to its terms, or to originate “qualified mortgages” that
meet specific requirements with respect
to terms, pricing and fees. The new rule also contains new disclosure
requirements at mortgage loan origination and in monthly statements. These requirements will likely require significant
personnel resources and could have a material adverse effect on our operations.
Some of the regulatory changes described above may have the consequence of increasing our expenses, decreasing
our revenues and changing the activities in which we choose to engage. Many of these and other provisions of the Dodd-
Frank Act remain subject to regulatory rulemaking and implementation, the effects of which are not yet known. We may
be forced to invest significant management attention and resources to make any necessary changes related to the Dodd-
Frank Act and any regulations promulgated thereunder, which may adversely affect our business, results of operations,
financial condition or prospects. We cannot predict the specific impact and long-term effects the Dodd-Frank Act and the
regulations promulgated thereunder will have on our financial performance, the markets in which we operate and the
financial industry generally.
In addition to changes resulting from the Dodd-Frank Act, in July 2013, the Board of Governors of the Federal
Reserve System, FDIC and the OCC approved final rules (the “Final Capital Rules”) implementing revised capital rules to
reflect the requirements of the Dodd-Frank Act and the Basel III international capital standards. Among other things, the
Final Capital Rules establish a new capital ratio of common equity Tier 1 capital of 4.5% and a common equity Tier 1
capital conservation buffer of 2.5% of risk-weighted assets; increase the minimum ratio of Tier 1 capital ratio from 4% to
6% and include a minimum leverage ratio of 4%; place an emphasis on common equity Tier 1 capital and implement the
Dodd-Frank Act phase-out of certain instruments from Tier 1 capital; and change the risk weights assigned to certain
instruments. The Final Capital Rules will be applicable to us on January 1, 2015 with conservation buffers phasing in over
the subsequent 5 years.
23
We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering
statutes and regulations.
The Bank Secrecy Act, the USA PATRIOT Act of 2001, and other laws and regulations require financial institutions,
among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and
currency transaction reports when appropriate. In addition to other bank regulatory agencies, the federal Financial Crimes
Enforcement Network of the Department of the Treasury is authorized to impose significant civil money penalties for
violations of those requirements and has recently engaged in coordinated enforcement efforts with the state and federal
banking regulators, as well as the U.S. Department of Justice, Consumer Financial Protection Bureau, Drug Enforcement
Administration, and Internal Revenue Service.
We are also subject to increased scrutiny of compliance with the rules enforced by the Office of Foreign Assets
Control of the Department of the Treasury regarding, among other things, the prohibition of transacting business with, and
the need to freeze assets of, certain persons and organizations identified as a threat to the national security, foreign policy
or economy of the United States. If our policies, procedures and systems are deemed deficient, we would be subject to
liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the
necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including any acquisition
plans. Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could
also have serious reputational consequences for us. Any of these results could have a material adverse effect on our
business, financial condition, results of operations and future prospects.
We are subject to numerous laws designed to protect consumers, including the Community Reinvestment Act and fair
lending laws, and failure to comply with these laws could lead to a wide variety of sanctions.
The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws
and regulations impose nondiscriminatory lending requirements on financial institutions. The CFPB, the Department of
Justice and other federal agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge
to an institution’s performance under the Community Reinvestment Act or fair lending laws and regulations could result in a
wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and
acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Private parties may also have
the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions
could have a material adverse effect on our business, financial condition, results of operations and future prospects.
We may be required to pay significantly higher FDIC premiums, special assessments, or taxes that could adversely
affect our earnings.
The high level of bank failures during the recent financial crisis significantly depleted the FDIC’s Deposit Insurance
Fund and reduced the ratio of reserves to insured deposits. As a result, we may be required to pay significantly higher
premiums or additional special assessments or taxes that could adversely affect our earnings. The Dodd-Frank Act
increased the minimum reserve ratio from 1.15% to 1.35%. The FDIC has adopted a plan under which it will meet this
ratio by the statutory deadline of September 30, 2020. The Dodd-Frank Act requires the FDIC to offset the effect of the
increase in the minimum reserve ratio on institutions with assets less than $10 billion. The FDIC has not announced how it
will implement this offset. In addition to the minimum reserve ratio, the FDIC must set a designated reserve ratio. The
FDIC has set a designated reserve ratio of 2.0%, which exceeds the minimum reserve ratio.
As required by the Dodd-Frank Act, the FDIC has adopted final regulations under which insurance premiums are
based on an institution’s total consolidated assets minus its tangible equity instead of its deposits. While our FDIC
insurance premiums initially will be reduced by these regulations, it is possible that our future insurance premiums will
increase under the final regulations. Any future increases or required prepayments in FDIC insurance premiums may
materially adversely affect our results of operations.
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
24
net interest margin. Its policies also can adversely affect borrowers, potentially increasing the risk that they may fail to
repay their loans. 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.
Impairment of goodwill and/or intangible assets could require charges to earnings, which could negatively impact our
results of operations.
Goodwill and other intangible assets arise when a business is purchased for an amount greater than the net fair value
of its identifiable assets. We have recognized goodwill as an asset on the balance sheet in connection with several recent
acquisitions. At December 31, 2013, we had $39.0 million of goodwill and intangible assets. We evaluate goodwill and
intangibles for impairment at least annually by comparing fair value to carrying amount. Although we have determined
that goodwill and other intangible assets were not impaired during 2013, a significant and sustained decline in our stock
price and market capitalization, a significant decline in our expected future cash flows, a significant adverse change in the
business climate, slower growth rates or other factors could result in impairment of goodwill or other intangible assets. If
we were to conclude that a future write-down of the goodwill or intangible assets is necessary, then we would record the
appropriate charge to earnings, which could be materially adverse to our results of operations and financial position.
Our Cash Connect division relies on multiple financial and operational controls to track and settle the cash it provides
to its customers in the ATM industry.
The profitability of Cash Connect is reliant upon its ability to accurately and efficiently distribute, track, and settle
large amounts of cash to its customers’ ATMs. This depends on the successful implementation and monitoring of a
comprehensive series of financial and operational controls that are designed to help prevent, detect, and recover any
potential loss of funds. These controls require the implementation and maintenance of complex proprietary software, the
ability to track and monitor an extensive network of armored car companies, and the ability to settle large amounts of
electronic funds transfer, or EFT, funds from various ATM networks. It is possible for those associated with armored car
companies, ATM networks and processors, ATM operators, or other parties to misappropriate funds belonging to Cash
Connect. Cash Connect has experienced such occurrences in the past. If our Cash Connect division’s established policies,
procedures and controls are inadequate to prevent a misappropriation of funds, or if a misappropriation of funds is not
insured or not fully covered through any insurance maintained by us, it could result in an adverse impact on our earnings.
The soundness of other financial institutions could adversely affect us.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial
soundness of other financial institutions. Defaults by, or even rumors or questions about, one or more financial services
institutions, or the financial services industry generally, have led to market-wide liquidity problems and could lead to
losses or defaults by us or by other institutions. Such events may materially and adversely affect our results of operations.
Our recent business strategy included significant investment in growth plans, and our financial condition and results
of operations could be negatively affected if we fail to grow or fail to manage our growth and investment in branch
infrastructure effectively.
We have pursued a significant growth strategy for our business. Our growth initiatives have required us to recruit
experienced personnel to assist in such initiatives. Accordingly, the failure to retain such personnel would place
significant limitations on our ability to successfully execute our growth strategy. In addition, as we expand our lending
beyond our current market areas, we could incur additional risk related to those new market areas. We may not be able to
expand our market presence in our existing market areas or successfully enter new markets.
A weak economy, low demand and competition for credit may impact our ability to successfully execute our growth
plan and adversely affect our business, financial condition, results of operations, reputation and growth prospects. While
we believe we have the executive management resources and internal systems in place to successfully manage our future
growth, there can be no assurance growth opportunities will be available or that we will successfully manage our growth.
25
We regularly evaluate potential acquisitions and expansion opportunities. If appropriate opportunities present
themselves, we expect to engage in selected acquisitions or other business growth initiatives or undertakings. We may not
successfully identify appropriate opportunities, may not be able to negotiate or finance such activities and such activities,
if undertaken, may not be successful.
We have in the past and may in the future pursue acquisitions, which may disrupt our business and adversely affect
our operating results, and we may fail to realize all of the anticipated benefits of our pending acquisition of First
Wyoming.
We have historically pursued acquisitions, and may seek acquisitions in the future. We may not be able to
successfully identify suitable candidates, negotiate appropriate acquisition terms, complete proposed acquisitions,
successfully integrate acquired businesses into the existing operations, or expand into new markets. Once integrated,
acquired operations may not achieve levels of revenues, profitability, or productivity comparable with those achieved by
our existing operations, or otherwise perform as expected.
Acquisitions involve numerous risks, including difficulties in the integration of the operations, technologies, services
and products of the acquired companies, and the diversion of management’s attention from other business concerns. We
may not properly ascertain all such risks prior to an acquisition or prior to such a risk impacting us while integrating an
acquired company. As a result, difficulties encountered with acquisitions could have a material adverse effect on our
business, financial condition, and results of operations.
Furthermore, we must generally receive federal regulatory approval before we can acquire a bank or bank holding
company. In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among
other factors, the effect of the acquisition on competition, financial condition, future prospects, including current and
projected capital levels, the competence, experience, and integrity of management, compliance with laws and regulations,
the convenience and needs of the communities to be served, including the acquiring institution’s record of compliance
under the Community Reinvestment Act, and the effectiveness of the acquiring institution in combating money laundering
activities. In addition, we cannot be certain when or if, or on what terms and conditions, any required regulatory approvals
will be granted. Consequently, we may not obtain regulatory approval for a proposed acquisition on acceptable terms or at
all, in which case we would not be able to complete the acquisition despite the time and expenses invested in pursuing it.
The success of our pending acquisition of First Wyoming Financial Corporation, which we announced on
November 25, 2013, will depend on, among other things, our ability to realize anticipated costs savings and to
successfully combine our business with First Wyoming Financial Corporation in a manner that does not materially disrupt
existing customer relationships or result in decreased revenues from our respective customers. If we are not able to
successfully achieve these objectives, the anticipated benefits of the acquisition may not be realized fully or at all or may
take longer to realize than expected.
If the merger is not consummated, we will have incurred substantial costs that may adversely affect our financial
results and operations.
We have incurred and will continue to incur substantial costs in connection with the proposed merger. These costs
are primarily associated with the fees of our financial advisor, accountants and attorneys. If the merger is not
consummated, we will have incurred these costs from which we will have received little or no benefits.
We originate, sell, service and portfolio reverse mortgages, which subjects us to additional risks that could have a
material adverse effect on our business, reputation, liquidity, financial condition and results of operations.
We originate, sell, service and portfolio reverse mortgages. The reverse mortgage business is subject to substantial
risks, including market, credit, interest rate, liquidity, operational, reputational and legal risks. Generally, a reverse
mortgage is a loan available to seniors aged 62 or older that allows homeowners to borrow money against the value of
their home. No repayment of the mortgage is required until the borrower dies, moves out of the home or the home is sold.
A decline in the demand for reverse mortgages may reduce the number of reverse mortgages we originate, and adversely
affect our ability to sell reverse mortgages in the secondary market. Although foreclosures involving reverse mortgages
generally occur less frequently than forward mortgages, loan defaults on reverse mortgages leading to foreclosures may
26
occur if borrowers fail to maintain their property or fail to pay taxes or home insurance premiums. A general increase in
foreclosure rates may adversely impact how reverse mortgages are perceived by potential customers and thus reduce
demand for reverse mortgages. Finally, we could become subject to negative headline risk in the event that loan defaults
on reverse mortgages lead to foreclosures or evictions of elderly homeowners. All of the above factors could have a
material adverse effect on our business, reputation, liquidity, financial condition and results of operations.
We could experience an unexpected inability to obtain needed liquidity.
Liquidity is essential to our business, as we use cash to fund loans and investments, other interest-earning assets and
deposit withdrawals that occur in the ordinary course of our business. We also are required by federal and state regulatory
authorities to maintain adequate levels of capital to support our operations. Our principal sources of liquidity include
customer deposits, FHLB borrowings, brokered certificates of deposit, sales of loans, repayments to the Bank from
borrowers and paydowns and sales of investment securities. If our ability to obtain funds from these sources becomes
limited or the costs to us of those funds increases, whether due to factors that affect us specifically, including our financial
performance or the imposition of regulatory restrictions on us, or due to factors that affect the capital markets or other
events, including weakening economic conditions or negative views and expectations about the prospects for the financial
services industry as a whole, then our ability to meet our obligations or grow our banking business would be adversely
affected and our financial condition and results of operations could be harmed.
Litigation or legal proceedings could expose us to significant liabilities and damage our reputation.
From time to time, and particularly in light of the recent economic downturn, and the negative sentiment towards
banks, we have and may become party to various litigation claims and legal proceedings. Management evaluates these
claims and proceedings to assess the likelihood of unfavorable outcomes and estimates, if possible, the amount of
potential losses. We may establish a reserve, as appropriate, based upon our assessments and estimates in accordance with
accounting policies. We base our assessments, estimates and disclosures on the information available to us at the time and
rely on the judgment of our management with respect to those assessments, estimates and disclosures. Actual outcomes or
losses may differ materially from assessments and estimates, which could adversely affect our reputation, financial
condition and results of operations.
Our Trust and Wealth division is subject to a number of risks, including reputational risk.
Our Trust and Wealth division derives the majority of its revenue from noninterest income which consists of trust,
investment and other servicing fees. Success in this business segment is highly dependent on reputation. Our ability to
attract trust and wealth management clients is highly dependent upon external perceptions of this division’s level of
service, trustworthiness, business practices and financial condition. Negative perceptions or publicity regarding these
matters could damage the division’s and our reputation among existing customers and corporate clients, which could
make it difficult for the Trust and Wealth division to attract new clients and maintain existing ones. Adverse
developments with respect to the financial services industry may also, by association, negatively impact the division’s or
our reputation, or result in greater regulatory or legislative scrutiny or litigation against us. Although we monitor
developments for areas of potential risk to the division’s and our reputation and brand, negative perceptions or publicity
could materially and adversely impact both revenue and net income.
System failure or cybersecurity breaches of our network security could subject us to increased operating costs as well
as litigation and other potential losses.
Failure in or breach of our computer systems and network infrastructure, or those of our third party vendors or other
service providers, including as a result of cyber attacks, could disrupt our business, result in the disclosure or misuse of
confidential or proprietary information, damage our reputation, increase our costs and cause losses. Our operations are
dependent upon our ability to protect our computer equipment against damage from fire, power loss, telecommunications
failure or a similar catastrophic event. Any damage or failure that causes an interruption in our operations could have an
adverse effect on our financial condition and results of operations. In addition, our operations are dependent upon our
ability to protect the computer systems and network infrastructure utilized by us, including our Internet banking activities,
against damage from physical break-ins, cybersecurity breaches and other disruptive problems caused by the Internet or
27
other users. Such computer break-ins and other disruptions would jeopardize the security of information stored in and
transmitted through our computer systems and network infrastructure, which may result in significant liability to us and
damage to our reputation, and may discourage current and potential customers from using our Internet banking services.
As customer, public and regulatory expectations regarding operational and information security have increased, we have
added additional security measures to our computer systems and network infrastructure to mitigate the possibility of
cybersecurity breaches including firewalls and penetration testing. We continue to investigate cost effective measures as
well as insurance protection though these mitigation activities may not prevent future potential losses from system failures
or cybersecurity breaches.
Threats to information security also exist in the processing of customer information through various other vendors
and their personnel. The occurrence of any systems failure or interruption could damage our reputation and result in a loss
of customers and business, could subject us to additional regulatory scrutiny, or could expose us to legal liability. Any of
these occurrences could have a material adverse effect on our financial condition and results of operations.
Key employees may be difficult to retain.
Our Associates are our most important resource and, in many areas of the financial services industry, competition for
qualified personnel is intense. We invest significantly in recruitment, training, development and talent management as our
Associates are the cornerstone of our model. If we were unable to continue to attract and retain qualified key employees to
support the various functions of our businesses, our performance, including our competitive position, could be materially
adversely affected. As economic conditions improve, we may face increased difficulty in retaining top performers and
critical skilled employees. If key personnel were to leave us and equally knowledgeable or skilled personnel are
unavailable within the Company or could not be sourced in the market, our ability to manage our business may be
hindered or impaired.
Our ability to receive dividends from our subsidiaries could affect our liquidity and ability to pay dividends.
We are a separate and distinct legal entity from our subsidiaries, including the Bank. We receive substantially all of
our revenue from dividends from our subsidiaries. These dividends are the principal source of funds to pay dividends on
our Common Stock and interest and principal on our debt. Various federal and/or state laws and regulations limit the
amount of dividends that our Bank and certain of our nonbank subsidiaries may pay us. Also, our right to participate in a
distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s
creditors. Limitations on our ability to receive dividends from our subsidiaries could have a material adverse effect on our
liquidity and on our ability to pay dividends on common stock. Additionally, if our subsidiaries’ earnings are not
sufficient to make dividend payments to us while maintaining adequate capital levels, we may not be able to make
dividend payments to our common stockholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
28
ITEM 2. PROPERTIES
The following table sets forth the location and certain additional information regarding our offices and other material
properties as of December 31, 2013:
Location
Owned/
Leased
Date Lease
Expires
Net Book Value
of Property or
Leasehold
Improvements (1)
Deposits
(In Thousands)
WSFS Bank Center Branch
Leased
2025
$ 578
$946,855
Main Office
500 Delaware Avenue
Wilmington, DE 19801
Union Street Branch
211 North Union Street
Wilmington, DE 19805
Fairfax Shopping Center
2005 Concord Pike
Wilmington, DE 19803
Leased
2022
311
50,485
Leased
2048
1,004
79,998
Prices Corner Shopping Center Branch
Leased
2023
348
121,551
3202 Kirkwood Highway
Wilmington, DE 19808
Pike Creek Shopping Center Branch
Leased
2015
194
113,375
4730 Limestone Road
Wilmington, DE 19808
University Plaza Shopping Center Branch
Leased
2041
919
55,855
100 University Plaza
Newark, DE 19702
College Square Shopping Center Branch
Leased
2026
159
103,451
115 College Square Drive
Newark, DE 19711
Airport Plaza Shopping Center Branch
Leased
2018
427
76,887
144 N. DuPont Hwy.
New Castle, DE 19720
Glasgow Branch
2400 Peoples Plaza
Routes 40 & 896
Newark, DE 19702
Leased
2022
5
49,978
Middletown Crossing Shopping Center
Leased
2027
Leased
2060
428
351
64,842
14,948
400 East Main Street
Middletown, DE 19709
Dover Branch
Dover Mart Shopping Center
290 South DuPont Highway
Dover, DE 19901
West Dover Loan Office (2)
Greentree Office Center
160 Greentree Drive
Suite 103 & 105
Dover, DE 19904
Glen Mills Branch
395 Wilmington-West Chester Pike
Glen Mills, PA 19342
Leased
2014
3
N/A
Leased
2040
1,306
22,634
29
Location
Brandywine Branch
Inside Safeway Market
2522 Foulk Road
Wilmington, DE 19810
Operations Center (3)
2400 Philadelphia Pike
Wilmington, DE 19703
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 Branch
210 Fox Hunt Drive
Route 40 & 72
Bear, DE 19701
Camden Town Center Branch
4566 S. DuPont Highway
Camden, DE 19934
Rehoboth Branch
Lighthouse Plaza
19335 Coastal Highway
Rehoboth, DE 19771
West Dover Branch
1486 Forest Avenue
Dover, DE 19904
Longneck Branch
25926 Plaza Drive
Millsboro, DE 19966
Smyrna Branch
Simon’s Corner Shopping Center
400 Jimmy Drive
Smyrna, DE 19977
Oxford, LPO
59 South Third Street
Suite 1
Oxford, PA 19363
Greenville Branch
3908 Kennett Pike
Greenville, DE 19807
WSFS Bank Center (4)
500 Delaware Avenue
Wilmington, DE 19801
Owned/
Leased
Date Lease
Expires
Net Book Value
of Property or
Leasehold
Improvements (1)
Deposits
(In Thousands)
Leased
2014
$
2
$ 31,617
Owned
N/A
N/A
Leased
2015
4
37,691
Leased
2030
445
87,670
Leased
2018
30
81,064
Leased
2025
539
71,611
Leased
2049
Leased
2029
581
567
36,489
40,966
Owned
1,983
35,762
Leased
2026
Leased
2048
861
901
34,621
40,375
Leased
2017
N/A
7,777
Owned
1,739
489,693
Leased
2025
2,130
N/A
30
Location
Annandale, LPO
7010 Little River Tnpk.
Suite 330
Annandale, VA 22003
Oceanview Branch
69 Atlantic Avenue
Oceanview, DE 19970
Selbyville Branch
38394 DuPont Boulevard
Selbyville, DE 19975
Lewes Branch
34383 Carpenters Way
Lewes, DE 19958
Millsboro Branch
26644 Center View Drive
Millsboro, DE 19966
Concord Square Branch
4401 Concord Pike
Wilmington, DE 19803
Delaware City Branch
145 Clinton Street
Delaware City, DE 19706
West Newark Branch
201 Suburban Plaza
Newark, DE 19711
Owned/
Leased
Date Lease
Expires
Leased
2017
Net Book Value
of Property or
Leasehold
Improvements (1)
Deposits
(In Thousands)
N/A
$
4,017
Leased
2024
$
935
34,414
Leased
2018
6
11,359
Leased
2048
Leased
2029
Leased
2016
Owned
226
914
45
32
26,441
12,214
25,181
12,047
Leased
2040
1,366
48,924
Lantana Shopping Center Branch
Leased
2050
Leased
2047
322
71
23,208
29,480
6274 Limestone Road
Hockessin, DE 19707
West Chester Branch
400 East Market Street
West Chester, PA 19380
Edgmont Branch
5000 West Chester Pike
Newtown Square, PA 19073
Branmar Branch
1712 Foulk Road
Wilmington, DE 19810
Trolley Square
9A Trolley Square
Wilmington, DE 19806
Milford
688 North DuPont Highway
Milford, DE 19963
Seaford
22820 Sussex Highway
Sussex Commons Shopping Center
Unit 19
Seaford, DE 19963
Leased
2040
1,108
12,222
Leased
2061
1,033
111,075
Leased
2042
249
45,738
Leased
2015
Leased
2036
28
74
6,688
5,427
31
Location
Media
100 East State Street
Media, PA 19063
Plymouth Meeting
450 Plymouth Road
Suite 306
Plymouth Meeting, PA 19462
Midway Shopping Center
4601 Kirkwood Highway
Wilmington, DE 19808
Kennett Square Branch
100 Old Forge Lane
Kennett Square, PA 19348
Cash Connect
White Clay Mill
500 Creek View Road
Suite 100
Newark, DE 19711
Operations Center
Silverside — Carr Corporate Center
409 Silverside Road
Wilmington, DE 19809
Cypress Capital Management
1220 Market Street
Suite 704
Wilmington, DE 19801
Owned/
Leased
Date Lease
Expires
Net Book Value
of Property or
Leasehold
Improvements (1)
Deposits
Leased
2022
$
(In Thousands)
93
$
8,556
Leased
2016
21
13,829
Leased
2062
2,263
33,656
Leased
2028
Leased
2021
271
43
26,271
N/A
Leased
2027
289
N/A
Leased
2014
N/A
N/A
Greenville Wealth Management Center
Leased
2032
363
N/A
3801 Kennett Pike
Suite C-200
Greenville, DE 19807
Las Vegas Wealth Management Center (5)
Leased
2013
N/A
N/A
101 Convention Center Drive
Suite P109
Las Vegas, NV 89109
Array Financial Group/Arrow Land Transfer Co.
Leased
2017
47
N/A
510 West Lancaster Ave.
Haverford, PA 19041
$25,614
$3,186,942
(1) The net book value of all investments in premises and equipment totaled $35.2 million at December 31, 2013
(2) Location of Corporate Training Center.
(3) Building is for sale.
(4) Location of Corporate Headquarters.
(5) Month to month while negotiating a lease extension.
32
ITEM 3. LEGAL PROCEEDINGS
As initially disclosed in 2011, we were served with a complaint, filed in U.S. Bankruptcy Court for the Eastern
District of Pennsylvania, by a bankruptcy trustee relating to a former WSFS Bank customer. The complaint challenges the
Bank’s actions relating to the repayment of an outstanding loan and also seeks to avoid and recover the pre-bankruptcy
repayment of that loan, approximately $5.0 million. The matter has been captioned Goldstein v. Wilmington Savings Fund
Society, FSB (In re: Universal Marketing, Inc.), Chapter 7, Case No. 09-15404 (ELF), Adv. Pro. No. 11-00512. We
believe we acted appropriately and we are vigorously defending ourselves against the complaint.
Based upon available information we believe the estimate of the aggregate range of reasonably possible losses for
this legal proceeding was from approximately $250,000 to approximately $5.0 million at December 31, 2013.
There were no material changes or additions to other significant pending legal or other proceedings involving us
other than those arising out of routine operations. Management does not anticipate that the ultimate liability, if any, arising
out of such other proceedings will have a material effect on the Consolidated Financial Statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
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,
2013, we had 896 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, 2013 was $77.53
2013
2012
Stock Price Range
Low
High
Dividends
4th
3rd
2nd
1st
4th
3rd
2nd
1st
$57.45
52.35
45.82
42.19
$40.46
38.49
35.98
35.95
$79.85
63.66
52.89
49.72
$44.35
44.90
41.03
43.94
$0.12
0.12
0.12
0.12
$0.48
$0.12
0.12
0.12
0.12
$0.48
33
COMPARATIVE STOCK PERFORMANCE GRAPH
The graph and table which follow show the cumulative total return on our Common Stock over the last five years
compared with the cumulative total return of the Dow Jones Total Market Index and the Nasdaq Bank Index over the
same period as obtained from Bloomberg L.P. Cumulative total return on our Common Stock or the indices equals the
total increase in value since December 31, 2008, 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, 2008 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, 2008 through December 31, 2013
250
200
s
r
a
l
l
o
D
150
100
50
0
2008
2009
2010
2011
2012
2013
WSFS Financial Corporation
Dow Jones Total Market Index
Nasdaq Bank Index
WSFS Financial Corporation
Dow Jones Total Market Index
Nasdaq Bank Index
Cumulative Total Return
2008
2009
2010
2011
2012
2013
$100
100
100
$ 54
128
84
$102
149
95
$ 78
151
85
$ 93
176
101
$171
233
143
34
ITEM 6. SELECTED FINANCIAL DATA
At December 31,
Total assets
Net loans (1)
Reverse mortgages related assets
Investment securities (2)
Other investments
Mortgage-backed securities (2)
Total deposits
Borrowings (3)
Trust preferred borrowings
Senior debt
Stockholders’ equity
Number of full-service branches
For the Year Ended December 31,
Interest income
Interest expense
Net interest income
Noninterest income
Noninterest expenses
Provision (benefit) for income taxes
Net income
Dividends on preferred stock and accretion of
discount
Net income (loss) allocable to common stockholders
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
(4)
Return on average assets
Return on average equity
Return on tangible common equity (5)
Average equity to average assets
Tangible equity to assets
Tangible common equity to assets
Ratio of nonperforming assets to total assets
2013
2012
2011
2010
2009
(Dollars in Thousands, Except Per Share Data)
$4,515,763
2,936,467
37,328
132,343
36,201
684,773
3,186,942
759,830
67,011
55,000
383,050
39
$4,375,148
2,736,674
19,229
50,203
31,796
850,656
3,274,963
515,255
67,011
55,000
421,054
41
$4,289,008
2,712,774
15,722
43,215
35,765
812,856
3,135,304
656,609
67,011
—
392,133
40
$3,953,518
2,575,890
11,746
53,137
37,790
700,926
2,810,774
680,595
67,011
—
367,822
36
$3,748,507
2,479,155
11,653
46,048
40,395
669,059
2,561,871
787,798
67,011
—
301,800
37
$ 146,922
15,334
$ 150,287
23,288
$ 158,642
32,605
$ 162,403
41,732
$ 157,730
53,086
131,588
80,151
132,929
24,756
46,882
1,633
45,249
126,999
86,693
133,345
16,984
31,311
2,770
28,541
126,037
63,588
127,476
11,475
22,677
2,770
19,907
120,671
50,115
109,332
5,454
14,117
2,770
11,347
104,644
50,241
108,504
(2,093)
663
2,590
(1,927)
5.13
5.06
3.51%
3.56
62.42
37.64
1.07
11.60
13.60
8.62
7.69
7.69
1.40
3.28
3.25
3.39%
3.46
62.19
40.43
0.73
7.66
9.15
9.58
8.93
7.72
1.43
2.31
2.28
3.49%
3.60
66.85
33.34
0.56
5.96
7.03
9.34
8.41
7.18
2.14
1.48
1.46
3.47%
3.62
63.61
29.16
0.37
4.21
4.35
8.84
8.52
7.18
2.35
-0.30
-0.30
3.10%
3.30
69.56
32.21
0.02
0.24
NM
7.86
7.73
6.31
2.19
Includes loans held-for-sale.
Includes securities available-for-sale.
(1)
(2)
(3) Borrowings consist of FHLB advances, securities sold under agreement to repurchase and other borrowed funds.
(4) Computed on a fully tax-equivalent basis.
(5) Not a meaningful calculation as there was a net loss for 2009.
35
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
We are a thrift holding company headquartered in Wilmington, Delaware. Substantially all of our assets are held by
our subsidiary, WSFS Bank, the seventh oldest bank continuously operating under the same name in the United States. 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. A fixture in the community, WSFS has been in operation for more than 182 years.
In addition to its focus on stellar customer service, the Bank has continued to fuel growth and remain a leader in our
community. We are a relationship-focused, locally-managed, community banking institution that has grown to become the
largest thrift holding company in the State of Delaware, one of the top commercial lenders in the state and the third largest
bank in terms of Delaware deposits. We state our mission simply: “We Stand for Service.” Our strategy of “Engaged
Associates delivering Stellar Service growing Customer Advocates and value for our Owners” focuses on exceeding
customer expectations, delivering stellar service and building customer advocacy through highly-trained, relationship-
oriented, friendly, knowledgeable and empowered Associates.
Our core banking business is commercial lending funded by customer-generated deposits. We have built a $2.4
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 retail deposits and commercial relationships. We service our customers primarily from our 52 offices
located in Delaware (42), Pennsylvania (8), Virginia (1) and Nevada (1) and through our website at www.wsfsbank.com.
We also offer a broad variety of consumer loan products, retail securities and insurance brokerage through our retail
branches.
In July 2013 we added two new business units to WSFS Bank with the asset purchase of Array Financial Group, Inc.
(“Array”), a mortgage banking company specializing in a variety of residential mortgage and refinancing solutions, and a
related entity, Arrow Land Transfer Company (“Arrow”), an abstract and title company.
Our Cash Connect division is a premier provider of ATM Vault Cash and related services in the United States. Cash
Connect manages nearly $476 million in vault cash in nearly 15,000 ATMs nationwide and also provides online reporting
and ATM cash management, predictive cash ordering, armored carrier management, ATM processing and equipment
sales. Cash Connect also operates over 450 ATMs for the Bank, which has, by far, the largest branded ATM network in
Delaware.
As a leading provider of ATM Vault Cash to the U.S. ATM industry, Cash Connect is exposed to substantial
operational risk, including theft of cash from ATMs, armored vehicles, or armored carrier terminals, as well as general
risk of accounting errors or fraud. This risk is managed through a series of financial controls, automated tracking and
settlement systems, contracts, and other risk mitigation strategies, including both loss prevention and loss recovery
strategies. Throughout its 13-year history, Cash Connect periodically has been exposed to theft from armored courier
companies and consistently has been able to recover any losses through its risk management strategies.
The Wealth Management division provides a broad array of fiduciary, investment management, credit and deposit
products to clients through four businesses. WSFS Investment Group, Inc. provides insurance and brokerage products
primarily to our retail banking clients. Cypress Capital Management, LLC (“Cypress”) is a registered investment advisor
with over $614 million in assets under management. Cypress’ primary market segment is high net worth individuals, and
offers a ‘balanced’ investment style focused on preservation of capital and current income. Christiana Trust, with $8.9
billion in assets under administration, provides fiduciary and investment services to personal trust clients, and trustee,
agency, custodial and commercial domicile services to corporate and institutional clients. WSFS Private Banking serves
high net worth clients by delivering credit and deposit products and partnering with Cypress, Christiana Trust and WSFS
Investment Group to deliver investment management and fiduciary products and services.
We have two consolidated subsidiaries, WSFS Bank and Montchanin Capital Management, Inc., or Montchanin. We
also have one unconsolidated affiliate, WSFS Capital Trust III, or the Trust. WSFS Bank has two wholly-owned
36
subsidiaries, WSFS Investment Group, Inc. and Monarch Entity Services LLC, or Monarch. Montchanin has one wholly-
owned subsidiary, Cypress. In addition to the subsidiaries listed above, we also have one consolidated variable interest
entity (“VIE”), SASCO 2002-RM1 (“SASCO”), which is a reverse mortgage securitization trust.
RESULTS OF OPERATIONS
We recorded net income of $46.9 million for the year ended December 31, 2013, a $15.6 million or 50% increase
compared to $31.3 million for the year ended December 31, 2012, and a $24.2 million increase from $22.7 million for the
year ended December 31, 2011. Income allocable to common stockholders (after preferred stock dividends) was $45.2
million, or $5.06 per diluted common share for the year ended December 31, 2013, compared to income allocable to
common shareholders of $28.5 million, or $3.25 per diluted common share (a 55% increase in diluted EPS), and income
of $19.9 million, or $2.28 per common share, for the years ended December 31, 2012 and 2011, respectively. Earnings for
2013 were impacted by a lower provision for loan losses which decreased $24.9 million to $7.2 million partially offset by
securities gains which decreased by $17.9 million to $3.5 million. Net interest income increased during the year due to
continued franchise loan growth and prudent balance sheet management. Additionally, we continue to have significant
increases in wealth management income, credit/debit card and ATM income and mortgage banking activities. Noninterest
expense decreased $416,000 when compared to December 31, 2012 due to management’s continued careful monitoring of
operating expenses despite the growth in core revenue and corporate development costs. Salaries and benefits increased
due to additional performance-driven incentive compensation costs, while loan workout and Other Real Estate Owned
expenses continued to decrease due to our improved performance and the continued improvement in nonperforming assets
and FDIC expenses from prior year levels.
Net Interest Income. Net interest income increased $4.6 million, or 4%, to $131.6 million in 2013 from $127.0
million in 2012, while net interest margin increased 10 basis points to 3.56% in 2013 compared to 3.46% in 2012. The
increase in net interest income was due to lending growth during 2013 and improvement in our balance sheet mix,
combined with effective management of funding costs, such as the continued intentional reduction in higher-cost CDs and
the prepayment of higher rate Federal Home Loan Bank (“FHLB”) borrowings in late 2012. In addition, net interest
income and net interest margin have been favorably impacted by the consolidation of SASCO, a reverse mortgage
securitization trust, in late 2013. Partially offsetting these increases in net interest income and net interest margin were the
year-over-year reduced rates in our mortgage-backed securities (“MBS”) portfolio.
Net interest income increased $962,000, or 1%, to $127.0 million in 2012 from $126.0 million in 2011, while net
interest margin decreased 14 basis points to 3.46% in 2012 compared to 3.60% in 2011. The increase in net interest
income reflects lending growth during 2012 and was earned despite the impact of the successful completion of our Asset
Strategies during the second quarter of 2012. Also favorably impacting net interest income was an improvement in our
mix of loans combined with effective management of funding costs, both in deposit pricing and wholesale funding rates.
The decrease in net interest margin was mainly due to significantly reduced rates in the MBS portfolio resulting from
substantial sales and paydowns, with subsequent reinvestment at much lower market rates during 2012. During 2012 we
completed our issuance of $55 million in aggregate principal amount of 6.25% Senior Notes due 2019 which also
unfavorably impacted our net interest margin.
The following table provides 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.
37
Year Ended December 31,
Interest Income:
Commercial real estate loans
Residential real estate loans
Commercial loans (1)
Consumer loans
Loans held for sale
Mortgage-backed securities
Investment securities (2)
Reverse mortgages related assets
FHLB Stock and deposits in other banks
Favorable (unfavorable)
Interest expense:
Deposits:
Interest-bearing demand
Money market
Savings
Customer time deposits
Brokered certificates of deposits
FHLB of Pittsburgh advances
Trust Preferred borrowings
Reverse mortgage bonds payable
Senior debt
Other borrowed funds
Unfavorable (favorable)
Net change, as reported
2013 vs. 2012
2012 vs. 2011
Volume
Yield/Rate
Net
Volume
Yield/Rate
Net
(In Thousands)
$ 3,489
(944)
3,608
106
72
(2,207)
463
67
4
$(1,756) $ 1,733
(1,978)
(842)
(217)
(84)
(5,289)
1,194
1,787
331
(1,034)
(4,450)
(323)
(156)
(3,082)
731
1,720
327
$ (410) $ 1,345
(1,093)
(3,891)
(698)
61
(10,706)
263
133
46
(1,219)
6,180
(732)
61
2,755
77
1
(2)
$
935
(2,312)
2,289
(1,430)
122
(7,951)
(186)
134
44
4,658
(8,023)
(3,365)
6,711
15,067
(8,355)
113
34
3
(2,343)
(340)
1,183
—
60
2,462
70
170
(670)
(217)
(2,476)
(195)
(5,561)
(138)
—
13
(122)
283
(636)
(214)
(4,819)
(535)
(4,378)
(138)
60
2,475
(52)
79
151
124
(821)
277
(1,516)
—
—
648
(196)
(238)
(1,289)
(1,158)
(3,196)
41
(2,204)
105
—
648
(772)
(159)
(1,138)
(1,034)
(4,017)
318
(3,720)
105
—
1,296
(968)
1,242
(9,196)
(7,954)
(1,254)
(8,063)
(9,317)
$ 3,416
$ 1,173
$ 4,589
$ 7,537
$ (6,575) $
962
(1) The tax-equivalent income adjustment is related to commercial loans.
(2) The tax-equivalent income adjustment is related to municipal securities.
38
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,
2013
2012
2011
(Dollars in Thousands)
Assets
Interest-earning assets:
Loans (2) (3):
Commercial real estate loans
Residential real estate
loans
Commercial loans
Consumer loans
Loans held for sale (4)
Total loans
Mortgage-backed securities (5)
Investment securities (5)
Reverse mortgage related assets
Other interest-earning assets
Average
Balance
Interest
Yield/
Rate (1)
Average
Balance
Interest
Yield/
Rate (1)
Average
Balance
Interest
Yield/
Rate (1)
$ 797,384 $ 37,842
4.75% $ 733,999 $ 36,109
4.92% $ 742,692 $ 35,174
4.74%
235,803
1,519,320
288,658
18,922
2,860,087
711,443
95,795
25,777
34,516
9,492
67,768
13,445
591
129,138
12,834
1,692
2,867
391
4.03
4.43
4.66
3.12
4.52
1.80
2.50
11.12
1.13
258,699
1,458,601
285,625
20,127
2,757,051
819,545
51,333
16,505
32,617
11,470
68,610
13,662
675
130,526
18,123
498
1,080
60
4.43
4.67
4.78
3.35
4.75
2.21
1.07
6.54
0.18
4.11
294,103
1,337,954
300,703
5,978
2,681,430
750,975
44,923
13,557
36,707
14,057
66,320
15,092
279
130,922
26,486
683
535
16
3,527,592
158,642
4.78
4.97
5.02
4.67
4.92
3.53
1.52
3.95
0.04
4.53
Total interest-earning assets
3,727,618
146,922
3.97
3,677,051
150,287
Allowance for loan losses
Cash and due from banks
Cash in non-owned ATMs
Bank-owned life insurance
Other noninterest-earning assets
(43,014)
81,301
411,988
63,012
124,484
(48,485)
86,320
368,256
63,311
120,905
(57,325)
65,147
347,885
63,971
123,626
Total assets
$4,365,389
$4,267,358
$4,070,896
39
0.12%
0.40
0.41
1.77
0.84
0.40
0.81
1.75
2.02
—
—
1.42
1.03
3.49%
3.60%
2013
2012
2011
Average
Balance
Interest
Yield/
Rate (1)
Average
Balance
Interest
Yield/
Rate (1)
Average
Balance
Interest
Yield/
Rate (1)
Year Ended December 31,
(Dollars in Thousands)
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand
Money market
Savings
Customer time deposits
Total interest-bearing customer deposits
Brokered certificates of deposit
Total interest-bearing deposits
FHLB advances
Trust preferred borrowings
Reverse mortgage trust bonds payable
Senior debt
Other borrowed funds (6)
$ 566,848 $
779,023
391,047
530,496
2,267,414
177,396
2,444,810
573,989
67,011
6,757
55,000
143,131
529
1,123
217
4,712
6,581
599
7,180
1,874
1,342
60
3,771
1,107
0.09% $ 411,862 $
0.14
0.06
0.89
764,109
388,659
716,686
0.06% $ 329,227 $
0.23
0.11
1.33
724,263
355,743
765,620
246
1,759
431
9,531
11,967
1,134
13,101
6,252
1,480
—
1,296
1,159
2,174,853
201,618
2,376,471
561,117
67,011
—
—
150,116
0.52
0.42
0.51
1.32
2.17
—
6.68
0.86
0.72
405
2,897
1,465
13,548
18,315
816
19,131
9,972
1,375
—
—
2,127
2,281,316
269,682
2,550,998
466,243
67,011
—
19,085
135,030
0.29
0.34
0.29
0.32
1.98
0.88
6.86
0.77
0.47
3,238,367
23,288
586,173
33,939
408,879
$4,267,358
3,154,715
32,605
508,613
27,150
380,418
$4,070,896
Total interest-bearing liabilities
3,290,698
15,334
Noninterest-bearing demand deposits
Other noninterest-bearing liabilities
Stockholders’ equity
638,397
32,265
404,029
Total liabilities and stockholders’ equity
$4,365,389
Excess of interest-earning assets over interest-
bearing liabilities
$ 436,920
$ 438,684
$ 372,877
Net interest and dividend income
$131,588
$126,999
$126,037
Interest rate spread
Net interest margin
3.51%
3.56%
3.39%
3.46%
(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)
(5)
(6)
Includes loans held-for-sale in conjunction with our asset strategies undertaken in 2012.
Includes securities available-for-sale at fair value.
Includes federal funds purchased and securities sold under agreement to repurchase
40
Provision for Loan Losses. We maintain an allowance for loan losses at an appropriate level based on our
assessment of estimable and probable losses in the loan portfolio, pursuant to accounting literature, which is discussed
further in “Nonperforming Assets”. Our evaluation is based upon a review of the portfolio and requires significant,
complex and difficult judgments. For the year ended December 31, 2013, we recorded a provision for loan losses of $7.2
million compared to $32.1 million in 2012 and $28.0 million in 2011. This decrease was primarily due to a broad
improvement in the portfolio credit quality as indicated through significantly improved credit metrics, offset in part by
loan growth experienced in 2013.
Noninterest Income. Noninterest income decreased $6.5 million to $80.2 million in 2013 from $86.7 million in 2012.
Excluding the non-routine and other one-time items listed in the table below, noninterest income increased $5.3 million, or
8%, to $68.7 million in 2013 from $63.5 million in 2012.
(In Thousands)
Noninterest income (GAAP)
Less: Securities gains, net
Unanticipated BOLI income
Billing change (Cash Connect) (1)
Reverse mortgage consolidation gain (2)
Adjusted noninterest income (non-GAAP)
Twelve months ended
December 31,
2013
December 31,
2012
December 31,
2011
$80,151
(3,516)
—
(4,108)
(3,801)
$68,726
$ 86,692
(21,425)
(1,007)
(797)
—
$ 63,463
$63,588
(4,878)
(1,239)
—
—
$57,471
(1) A change in the method of billing for armored car services by our Cash Connect division caused revenues and expenses for these services to be
reported separately rather than netted together in our statement of operations beginning in the third quarter of 2012.
(2) During the third quarter of 2013, we obtained the right to execute a clean-up call on the underlying collateral for our pool of reverse mortgages. A
non-routine gain resulted from this transaction.
Wealth management income grew $2.2 million, or 17%, in 2013 compared to 2012, reflecting the continued
expansion of the corporate and personal trust business lines as well as an increase in Private Banking jumbo mortgage
products provided by the Array / Arrow acquisition in 2013. Credit/debit card and ATM fees increased by $1.4 million, or
6%, in 2013 compared to 2012, mostly due to additional product and service offerings and ATM income from Cash
Connect® our ATM division, which grew fees by 17%. Mortgage banking revenues increased $1.1 million, or 40%, in
2013 partially due to the purchase of Array / Arrow during the third quarter of 2013, refinance activity, and growth in our
retail lending division. Deposit service charges were essentially flat in 2013, as growth was offset by changes in customer
behavior due to new regulatory requirements in late 2012.
Noninterest income increased $23.1 million to $86.7 million in 2012 from $63.6 million in 2011. Excluding the
impact of the reconciling items in the table above, noninterest income increased $6.0 million, or 10%, to $63.5 million in
2012 from $57.5 million in 2011. Credit/debit card and ATM fees increased by $1.9 million, or 9%, in 2012 compared to
2011, most of which came from growth in Cash Connect. Wealth management income grew $1.4 million, or 12%, in 2012
compared to 2011. Mortgage banking revenues increased $1.3 million, or 87%, in 2012 compared to 2011, primarily
driven by refinance activity and growth in the retail lending division. Deposit service charges increased $762,000, or 5%,
in 2012 compared to 2011, due to overall Bank growth.
41
Noninterest Expenses. Noninterest expense in 2013 decreased $416,000 to $132.9 million from $133.3 million in
2012. Excluding the non-routine and other one-time items listed in the table below, noninterest expense decreased
$782,000, or 1%, to $128.1 million in 2013 from $129.0 million in 2012.
(In Thousands)
Noninterest expenses (GAAP)
Less: Billing change (Cash Connect) (1)
Corporate development costs (2)
“Right Here” advertising campaign
Prepayment penalties on FHLB advances
Twelve months ended
December 31,
2013
December 31,
2012
December 31,
2011
$132,929
(4,108)
(717)
—
—
$133,345
(797)
—
—
(3,662)
$127,477
—
(780)
(961)
—
Adjusted noninterest expenses (non-GAAP)
$128,104
$128,886
$125,736
(1) A change in the method of billing for armored car services by our Cash Connect division caused revenues and expenses for these services to be
reported separately rather than netted together in our statement of operations beginning in the third quarter of 2012.
(2) Corporate development costs were largely attributable to professional fees related to the Array Financial Group / Arrow Land Transfer Company
acquisition that closed during the third quarter of 2013, the pending acquisition of First Wyoming Financial Corporation announced during the
fourth quarter of 2013, and activities related to the calling and consolidating of the equity tranche SASCO of a 2002 reverse mortgage trust
transaction.
In 2013, loan workout and REO related costs decreased by $4.3 million from the prior year due to broad
improvement in our loan portfolio credit metrics. In addition, during 2013 we had lower regulatory costs, including a
decrease in FDIC assessment fees of $2.2 million. Partially offsetting these decreases were higher salaries, benefits and
other compensation, which increased $4.8 million, or 7%, mainly the result of higher performance-based compensation in
2013. Also, equipment expenses increased by $1.2 million, or 16%, mainly due to business growth.
Noninterest expense in 2012 increased $5.9 million, or 5%, to $133.3 million from $127.5 million in 2011.
Excluding the reconciling items in the table above, noninterest expenses increased only 2% in 2012 compared to 2011.
This increase reflected a full year of expenses related to branch expansion and renovation in 2011, and the relocation of
our operation center in 2012. In addition, incentive costs increased by $1.2 million in 2012 compared to 2011, as a result
of our improved performance in 2012. These increases were partially offset by expense management efforts including an
expense management plan implemented in the second half of 2012.
Income Taxes. We recorded $24.8 million of tax expense for the year ended December 31, 2013 compared to tax
expense of $17.0 million and $11.5 million for the years ended December 31, 2012 and 2011, respectively. The effective
tax rates for the years ended December 31, 2013, 2012 and 2011 were 34.6%, 35.2% and 33.6%, respectively. The 2013,
2012 and 2011 income tax expenses reflect tax benefits of $0, $3,000 and $378,000, respectively, resulting from net
reductions in unrecognized tax benefits for those years. Volatility in effective tax rates is 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 basis and the tax reporting basis of the assets and liabilities.
Included in income taxes for 2013 was a deferred tax asset and corresponding valuation allowance recorded in connection
with the consolidation of the reverse mortgage trust. During early 2014, this valuation allowance was removed. For
additional information see Note 23 to the Consolidated Financial Statements.
FINANCIAL CONDITION
Total assets increased $140.6 million, or 3%, to $4.5 billion as of December 31, 2013 compared to $4.4 billion as of
December 31, 2012. Included in this increase was a $199.8 million, or 7%, increase in net loans (including those held for
sale) and a $18.1 million increase in reverse mortgage related assets. Total liabilities increased $178.6 million during the year
to $4.1 billion at December 31, 2013. This increase was primarily the result of an increase in FHLB advances of $261.8
million as of December 31, 2013 compared to December 31, 2012 and was partially offset by a decrease in customer deposits
of $86.1 million.
42
Cash in non-owned ATMs. During 2013, cash in non-owned ATMs managed by Cash Connect, our ATM unit,
decreased $17.3 million, or 4%. Cash Connect serviced nearly 15,000 ATMs at December 31, 2013, as well as more than
450 WSFS-owned ATMs to serve customers in our markets.
Investment Securities.
Investment securities decreased $83.7 million to $817.1 million during 2013. Our portfolio
of available-for-sale MBS was comprised of all GSE as of December 31, 2013. Our MBS were predominantly of short
duration with a weighted average duration of 5.3 years at December 31, 2013. We own no collateralized debt obligations,
bank trust preferred securities, Agency preferred securities or equity securities in other FDIC insured banks or thrifts.
During 2013, we purchased $94.6 million of municipal bonds. The purpose was to improve return, diversify our
investment portfolio and reduce our effective tax rate.
In addition, we own 50,833 shares of Visa Class B stock. The shares are restricted until a group of four distinct legal
cases known collectively as “the Covered Litigation” are resolved. Two of the four cases have been definitively resolved.
Once the Covered Litigation is concluded the shares will convert to Class A shares at a conversion rate which currently
stands at 0.4206 and subject to change as the Covered Litigation are resolved. As of December 31, 2013, the carrying
value of these shares was $0 on our Consolidated Statement of Condition.
Loans, net. Net loans (including those held for sale) increased $199.8 million, or 7%, during 2013. Loan growth included
commercial and industrial loans increases of $121.4 million, or 8% as well as $93.1 million, or 15%, in commercial real estate
loan growth. Partially offsetting these increases were construction loans which decreased by $27.4 million, or 21%.
Goodwill and Intangibles. Goodwill and intangibles increased $5.7 million during 2013 due to the acquisition of
Array and Arrow during 2013. As a result of this acquisition; we recorded goodwill of $4.1 million and other intangibles
of $2.4 million.
Customer Deposits. Customer deposits decreased $86.1 million, or 3%, during 2013 to $3.0 billion. This decrease
consisted of a decrease in jumbo certificates of deposit of $73.1 million, or 25%, and a decrease in customer time deposits
(CDs under $100,000), of $80.0 million, or 25%. Partially offsetting these decreases was an increase in core deposit
relationships (demand deposits, money market and savings accounts) of $67.0 million, or 3%, during 2013.
The table below depicts the changes in customer deposits during the last three years:
Year Ended December 31,
2013
2012
2011
Beginning balance
Interest credited
Deposit (outflows) inflows, net
Ending balance
(Dollars In Millions)
$2,847
10
247
$3,104
5
(91)
$2,562
19
266
$3,018
$3,104
$2,847
Reverse Mortgage Related Assets. Reverse mortgage related assets include reverse mortgage loans, SASCO 2002-
RM1’s Class “O” certificates and the BBB-rated tranche of this reverse mortgage security.
For additional information on these reverse mortgage related assets, see Note 6 to our Consolidated Financial Statements
Borrowings and Brokered Deposits. Borrowing and brokered deposits increased by $242.7 million during 2013.
Included in the increase was $261.8 million of Federal Home Loan Bank Advances. Partially offsetting this increase was a
decrease of $13.0 million in federal funds purchased and securities sold under agreements to repurchase, $4.2 million in
other borrowed funds and $1.9 million in brokered deposits.
Stockholders’ Equity. Stockholders’ equity decreased $38.0 million, or 9%, to $383.1 million at December 31,
2013 compared to $421.1 million at December 31, 2012. Capital in excess of par value decreased $44.5 million as a result
of our redemption of preferred stock. In addition, other comprehensive income decreased $34.2 million during 2013,
mainly due to a decrease in unrealized gains on available-for-sale securities. Partially offsetting these decreases was
43
retained earnings which increased $40.7 million, or 9%, to $474.0 million during 2013, primarily as a result of earnings
from the year less dividends paid.
ASSET/LIABILITY MANAGEMENT
Our primary asset/liability management goal is to optimize long term net interest income opportunities within the
constraints of managing interest rate risk, 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 using a number of methods including by examining the extent
to which such assets and liabilities are “interest-rate sensitive” and by monitoring our 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.
For additional information related to interest rate sensitivity, see Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.
The repricing and maturities of our interest-rate sensitive assets and interest-rate sensitive liabilities at December 31,
2013 are shown in the following table:
(Dollars in Thousands)
Interest-rate sensitive assets:
Commercial loans (2)
Real estate loans (1) (2)
Mortgage-backed securities
Consumer loans (2)
Investment securities
Loans held-for-sale (2)
Reverse mortgage related assets
Total Assets
Interest-rate sensitive liabilities:
Money market and interest-bearing demand deposits
Retail certificates of deposit
FHLB advances
Savings accounts
Brokered certificates of deposit
Other borrowed funds
Jumbo certificates of deposit
Trust preferred securities
Senior notes
Total Liabilities
Less than
One Year
One to
Five Years
Over
Five Years
Total
$1,195,746
723,867
90,673
218,390
52,475
31,491
4,627
$287,061
210,829
316,287
49,775
31,980
—
12,919
$ 67,152
118,088
277,813
34,070
84,089
—
20,162
$1,549,959
1,052,784
684,773
302,235
168,544
31,491
37,708
2,317,269
908,851
601,374
3,827,494
1,068,283
139,402
615,925
191,866
168,310
96,739
117,710
67,011
—
—
96,084
22,166
—
417
25,000
103,435
—
—
457,835
1,479
—
191,866
—
—
—
—
55,000
1,526,118
236,965
638,091
383,732
168,727
121,739
221,145
67,011
55,000
2,465,246
247,102
706,180
3,418,528
(Deficiency) excess of interest-rate sensitive assets over interest-rate
liabilities (“interest-rate sensitive gap”)
$ (147,977) $661,749
$(104,806) $ 408,966
One-year interest-rate sensitive assets/interest-rate sensitive liabilities
One-year interest-rate sensitive gap as a percent of total assets
94.00%
-3.28%
Includes commercial mortgage, construction, and residential mortgage loans
(1)
(2) Loan balances exclude nonaccruing loans, deferred fees and costs
44
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,
reprice at the same price, at 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. For the purpose of this analysis,
we estimate, based on historical trends of our deposit accounts, that 75% of our money market deposits, 50% of our
interest-bearing demand deposits and 50% of our 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
Years” category.
Deposit rates other than time deposit rates are variable. Changes in deposit rates are generally subject to local market
conditions and our discretion and are not indexed to any particular rate.
NONPERFORMING ASSETS
Nonperforming assets include nonaccruing loans, nonperforming real estate, assets acquired through foreclosure and
restructured commercial, mortgage and home equity consumer debt. 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.
45
The following table shows our nonperforming assets and past due loans at the dates indicated:
At December 31,
(Dollars in Thousands)
Nonaccruing loans:
Commercial
Owner-occupied commercial (1)
Commercial mortgages
Construction
Residential mortgages
Consumer
Total nonaccruing loans
Assets acquired through foreclosure
Restructured loans (2)
Total nonperforming assets
Past due loans:
Residential mortgages
Commercial and commercial mortgages
Consumer
Total past due loans
Ratio of nonaccruing loans to total loans (3)
Ratio of allowance for loan losses to gross loans (3)
Ratio of nonperforming assets to total assets
Ratio of loan loss allowance to nonaccruing loans
2013
2012
2011
2010
2009
$ 4,305
5,197
8,565
1,158
8,432
3,293
30,950
4,532
12,332
$ 4,861
14,001
12,634
1,547
9,989
4,728
47,760
4,622
10,093
$23,080
—
15,814
22,124
9,057
1,018
71,093
11,695
8,887
$21,577
—
9,490
30,260
11,739
3,701
76,767
9,024
7,107
$ 9,463
—
1,021
44,680
9,959
818
65,941
8,945
7,274
$47,814
$62,475
$91,675
$92,898
$82,160
$
$
533
—
—
533
$
$
786
—
—
786
$
$
887
78
—
965
$
$
465
—
—
465
$ 1,221
105
97
$ 1,423
1.05% 1.73%
1.40
1.06
133.26
1.58
1.43
91.96
2.58%
1.92
2.14
74.66
2.93%
2.30
2.35
78.60
2.61%
2.12
2.19
81.05
(1) Prior to 2012, owner-occupied commercial loans were included in commercial loans.
(2) Accruing Loans only; Nonaccruing TDR’s are included in their respective categories of nonaccruing loans.
(3) Total loans exclude loans held-for-sale.
Nonperforming assets decreased $14.7 million between December 31, 2012 and December 31, 2013. As a result,
nonperforming assets as a percentage of total assets decreased from 1.43% at December 31, 2012 to 1.06% at
December 31, 2013. Nonperforming loans improved from 1.73% of total loans to 1.05% as new migration continues to be
outweighed by pay downs, charge-offs and migration of assets to Other Real Estate Owned (OREO).
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
Collections from loan dispositions
Transfers to accrual
Charge-offs/write-downs
Ending balance
2013
2012
2011
$ 62,475
30,367
(29,725)
—
(1,702)
(13,601)
$ 91,675
73,170
(46,514)
(14,305)
(552)
(40,999)
$ 92,898
89,842
(40,695)
—
(8,474)
(41,896)
$ 47,814
$ 62,475
$ 91,675
The timely identification of problem loans is a key element in our strategy to manage our loan portfolio. Timely
identification enables us to take appropriate action and, accordingly, minimize losses. An asset review system established
to monitor the asset quality of our loans and investments in real estate portfolios facilitates the identification of problem
assets. In general, this system utilizes guidelines established by federal regulation.
At December 31, 2013, we did not have a material amount of loans which had not been 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.
46
As of December 31, 2013, we had $113.2 million of loans which, although performing at that date, required
increased supervision and review. They may, depending on the economic environment and other factors, become
nonperforming assets in future periods. The amount of such loans at December 31, 2012 was $120.0 million. The majority
of these loans are secured by commercial real estate, with others being secured by residential real estate, inventory and
receivables.
Allowance for Loan Losses. We maintain an allowance for loan losses and charge losses to this allowance when
such losses are realized. We established our loan loss allowance in accordance with guidance provided in the Securities
and Exchange Commission’s Staff Accounting Bulletin 102 (“SAB 102”). The determination of the allowance for loan
losses requires significant judgment reflecting our best estimate of impairment related to specifically identified impaired
loans as well as probable loan losses in the remaining loan portfolio. Our evaluation is based upon a continuing review of
these portfolios. For additional information regarding the allowance for loan losses, see Note 5 to the Consolidated
Financial Statements.
The allowance for loan losses of $41.2 million at December 31, 2013 decreased $2.7 million from $43.9 million at
December 31, 2012. In addition, the ratio of allowance for loan losses to total gross loans was 1.40% at December 31, 2013,
compared to 1.58% at December 31, 2012. These decreases reflect the following items:
• A decrease in problem loans (all criticized, classified and nonperforming loans)
• Total problem loans improved to 33.6% of Tier 1 capital plus the allowance for loan losses at
December 31, 2013, compared to 52.5% at December 31, 2012, reflecting:
•
•
•
Favorable risk-rating migration,
Problem asset disposition efforts, and
Prudent credit management.
•
Improved credit metrics of the loan portfolio:
• Nonperforming loans decreased from $45.7 million at December 31, 2012 to $31.0 million at
December 31, 2013,
• Total loan delinquency decreased from $45.0 million, or 1.62% of total loans at December 31, 2012, to
$22.4 million, or 0.76% of total loans at December 31, 2013, with performing loan delinquency a very low
0.28% of total loans at December 31, 2013 compared to 0.40% of total loans at December 31, 2012, and
• Our construction loan portfolio, a portfolio that experienced significant losses over the last five years and
typically has a higher loss content, continued to trend favorably:
• Nonperforming construction loans improved from $1.5 million at December 31, 2012 to only $1.2
million at December 31, 2013 and
• Delinquent construction loans went from $825,000 at December 31, 2012 to $1.2 million at
December 31, 2013. The $1.2 million is one loan and no performing loan delinquency occurs.
During 2013, net charge-offs were $9.9 million or 0.33%, of average loans. This compares to net charge-offs for the
year ended December 31, 2012 of $41.2 million or 1.49% of average loans.
47
The table below represents a summary of changes in the allowance for loan losses during the periods indicated:
Year Ended December 31,
(Dollars in Thousands)
Beginning balance
Provision for loan losses
Charge-offs:
Commercial Mortgage
Construction
Commercial
Owner-occupied Commercial (1)
Residential real estate
Consumer
Overdrafts
Total charge-offs (2)
Recoveries:
Commercial Mortgage
Construction
Commercial
Owner-occupied Commercial (1)
Residential real estate
Consumer
Overdrafts
Total recoveries
Net charge-offs
Ending balance
2013
2012
2011
2010
2009
$43,922
7,172
$53,080
32,053
$60,339
27,996
$53,446
41,883
$31,189
47,811
1,915
1,749
2,636
1,225
1,226
3,905
1,008
6,517
10,820
12,806
5,076
3,857
5,613
1,113
7,446
11,602
9,419
—
3,165
5,332
869
3,902
14,972
9,458
—
2,241
5,974
1,019
1,453
14,479
5,796
—
1,164
2,458
1,216
13,664
45,802
37,833
37,566
26,566
685
989
1,003
128
122
483
404
3,814
9,850
405
1,761
1,536
13
176
337
363
4,591
334
582
897
—
211
206
348
2,578
126
1,495
375
—
26
179
375
2,576
4
375
150
—
38
65
380
1,012
41,211
35,255
34,990
25,554
$41,244
$43,922
$53,080
$60,339
$53,446
Net charge-offs to average gross loans outstanding, net of unearned
income
0.33% 1.49%
1.32%
1.39%
1.01%
(1) Prior to 2012, owner-occupied loans were included in commercial loan balances.
(2) Total Charge-Offs for 2012 include $16.4 million related to our Asset Strategies completed during 2012.
The allowance for loan losses is allocated by major portfolio type. As these portfolios have seasoned, they have
become a source of historical data in projecting delinquencies and loss exposure. However, such allocations are not a
guarantee of when future losses may occur and/or the actual amount of losses. While we have allocated the allowance for
loan losses by portfolio type in the following table, the entire reserve is available for any loan category to utilize. The
allocation of the allowance for loan losses by portfolio type at the end of each of the last five years and the percentage of
outstanding loans in each category to total gross loans outstanding at such dates follow:
At December 31,
2013
2011
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
2010
2012
2009
(Dollars in Thousands)
Commercial mortgage
Construction
Commercial
Owner-Occupied Commercial (1)
Residential real estate
Consumer
Complexity Risk
$ 6,932
3,326
12,751
7,638
3,078
6,494
1,025
16.8% $ 8,079
8.1% 6,456
30.9% 13,663
18.5% 6,108
7.5% 3,124
15.7% 5,631
2.5%
22.6% $ 7,556
4.8% 4,074
25.5% 24,302
27.8%
—
8.8% 6,544
10.5% 10,604
—
22.6% $10,564
3.8% 10,019
53% 26,556
— %
—
10% 3,952
10.6% 9,248
—
— %
23.8% $ 6,160
5.4% 10,922
47.2% 24,834
— %
11.8% 4,073
11.8% 7,457
— %
20.7 %
9.2 %
44.4 %
— — %
13.8%
11.9%
— %
—
861 — %
Total
$41,244 100.0% $43,922 100.0% $53,080 100.0% $60,339 100.0% $53,446 100.0%
(1) Prior to 2012, owner-occupied commercial loans were included in commercial loan balances
48
CAPITAL RESOURCES
Under guidelines issued by banking regulators, savings institutions such as the Bank 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 actions and
possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our
financial statements. We hold a capital cushion well in excess of these limits.
The Federal Deposit Insurance Corporation Improvement Act (FDICIA), as well as other requirements, established
five capital tiers: well-capitalized, adequately-capitalized, under-capitalized, significantly under-capitalized, and critically
under-capitalized. A depository institution’s capital tier depends upon its capital levels in relation to various relevant
capital measures, which include leverage and risk-based capital measures and certain other factors. Depository institutions
that are not classified as well-capitalized are subject to various restrictions regarding capital distributions, payment of
management fees, acceptance of brokered deposits and other operating activities.
At December 31, 2013, we were 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 9 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 2013 or 2012. At December 31, 2013, we held 9.6 million shares of our
common stock as treasury shares. At December 31, 2013, we had 506,000 shares remaining under our current share
repurchase authorization.
In 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, as well as a 10-year
warrant to purchase 175,100 shares of common stock at an exercise price of $45.08. In 2012, the Treasury held a public
auction where it sold its entire preferred stock holding in us. In September, 2012, we entered into an agreement with the U.S.
Treasury pursuant to which we repurchased the warrant for $1.8 million. During 2013, we received approval from our
primary regulators to redeem our outstanding $52.6 million Fixed-Rate Cumulative Perpetual Preferred Stock, Series A.
During August 2013 we completed the redemption of the preferred stock using available cash on hand. Additional
information concerning the CPP is included in Note 18 to the Consolidated Financial Statements.
We completed a private placement to Peninsula Investment Partners, L.P. (Peninsula) in 2009, pursuant to which we
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 our common stock at an exercise price of $29.00 per share. Additional information concerning
the Peninsula transaction is included in Note 20 to the Consolidated Financial Statements.
In August of 2010, we completed an underwritten public offering of 1,370,000 shares of common stock, and raised
$47.1 million, net of $2.9 million of costs.
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.
49
CONTRACTUAL OBLIGATIONS
At December 31, 2013, we had contractual obligations relating to operating leases, long-term debt, data processing
and credit obligations. These obligations are summarized below. See Notes 7, 10 and 16 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
One Year
One to
Three Years
Three to
Five Years
Over
5 Years
$ 182,774
638,091
6,525
653,331
$
7,924
615,925
3,437
653,331
15,195
22,166
3,088
—
15,020
—
—
—
$144,635
—
—
—
$1,480,721
$1,280,617
$40,449
$15,020
$144,635
IMPACT OF INFLATION AND CHANGING PRICES
Our Consolidated Financial Statements have been prepared in accordance with GAAP, 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.
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 GAAP. The preparation of these Consolidated Financial
Statements requires us to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenue and
expenses. We regularly evaluate these estimates and assumptions including those related to the allowance for loan losses,
deferred taxes, fair value measurements, goodwill and other intangible assets. We base our estimates on historical
experience and various other factors and assumptions that are believed to be reasonable under the circumstances. These
form the basis for making judgments on the carrying value of 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. For additional
information on these policies, see Note 1 to the Consolidated Financial Statements.
Allowance for Loan Losses
We maintain allowances for loan losses and charge losses to these allowances when realized. We consider the
determination of the allowance for loan losses to be critical because it requires significant judgment reflecting our best
estimate of impairment related to specifically evaluated impaired loans as well as the inherent risk of loss for those in the
remaining loan portfolio. Our evaluation is based upon a continuing review of the portfolio, with consideration given to
evaluations resulting from examinations performed by regulatory authorities.
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 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 values of the residence. At each reporting date, a new economic forecast is made of the cash inflows and
50
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. Accordingly, because of this market-value based
accounting the recorded value of reverse mortgages include significant risk associated with estimations and income
recognition can vary significantly from reporting period to reporting period.
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 consider our accounting policies on deferred taxes to
be critical because 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. A valuation allowance of $4.9 million was required as of December 31, 2013. See Note 14,
Taxes on Income to the Consolidated Financial Statements, for further discussion of the valuation allowance.
Fair Value Measurements
We adopted FASB ASC 820-10 Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value,
establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements.
We consider our accounting policies related to fair value measurements to be critical because they are important to the
portrayal of our financial condition and results, and they require our subjective and complex judgment as a result of the
need to make estimates about the effects of matters that are inherently uncertain. See Note 16, Fair Value Disclosures to
our Consolidated Financial Statements.
Goodwill and Other Intangible Assets
Intangible assets resulting from acquisitions under the purchase method of accounting consist of goodwill and other
intangible assets. Goodwill is not amortized and is subject to at least annual assessments for impairment by applying a fair
value based test. We review goodwill annually and again at any quarter-end if a material event occurs during the quarter
that may affect goodwill. This review evaluates potential impairment by determining if our fair value has fallen below
carrying value.
Other intangible assets consist mainly of core deposits and covenants not to compete obtained through acquisitions
and are amortized over their estimated lives using the present value of the benefit of the core deposits and straight-line
methods of amortization. Core deposit intangibles are evaluated for impairment when events or changes in circumstances
indicate that the carrying amount may not be recoverable.
See Notes 2 and 8 to our Consolidated Financial Statements for further discussion on Goodwill and Other Intangible
Assets.
RECENT ACCOUNTING PRONOUNCEMENTS
For information on Recent Accounting Pronouncements see Note 1 to 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. We regularly review our interest-rate sensitivity and adjust the sensitivity within our
acceptable tolerance ranges. At December 31, 2013 interest-bearing liabilities exceeded interest-earning assets that mature
or reprice within one year (interest-sensitive gap) by approximately $148 million. Our interest-sensitive assets as a
percentage of interest-sensitive liabilities within one-year decreased from 98.1% at December 31, 2012 to 94% at
December 31, 2013. Likewise, the one-year interest-sensitive gap as a percentage of total assets changed to -3.28% at
December 31, 2013 from -1.02% at December 31, 2012. The change in sensitivity since December 31, 2012 was the result
of the current interest rate environment and our continuing effort to effectively manage interest rate risk.
51
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. The following table is the estimated impact of immediate changes in interest rates on our net
interest margin and economic value of equity at the specified levels at December 31, 2013 and December 31, 2012.
December 31, 2013
December 31, 2012
Change in
Interest Rate
(Basis Points)
% Change in
Net Interest
Margin (1)
Economic Value of Equity
(2)
300
200
100
—
-100
-200 (3)
-300 (3)
-1%
-2%
-3%
— %
-1%
NMF
NMF
11.78%
11.97%
12.13%
12.25%
11.92%
NMF
NMF
% Change in
Net Interest
Margin (1)
4%
1%
-3%
— %
-1%
NMF
NMF
Economic Value
of Equity (2)
12.49%
12.62%
12.54%
12.31%
11.56%
NMF
NMF
(1) The percentage difference between net interest income in a stable interest rate environment and net interest margin as projected under the various
rate change environments.
(2) The economic value of equity ratio in a stable interest rate environment and the economic value of equity projected under the various rate change
environments.
(3) Sensitivity indicated by a decrease of 200 and 300 basis points is deemed not meaningful (NMF) 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.
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.
52
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 statements of condition of WSFS Financial Corporation and subsidiaries
(the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations,
comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period
ended December 31, 2013. 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 the Company as of December 31, 2013 and 2012, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2013, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company’s internal control over financial reporting as of December 31, 2013, based on criteria established in
Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 17, 2014 expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
Philadelphia, Pennsylvania
March 17, 2014
/s/ KPMG LLP
53
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 reverse mortgage related assets
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 bonds payable
Interest on senior debt
Interest on other borrowings
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest Income
Credit/debit card and ATM income
Deposit service charges
Wealth management income
Mortgage banking activities, net
Reverse mortgage consolidation gain
Securities gains, net
Loan fee income
Bank-owned life insurance income
Other income
Noninterest Expense
Salaries, benefits and other compensation
Occupancy expense
Equipment expense
Data processing and operations expense
Professional fees
FDIC expenses
Loan workout and OREO expense
Marketing expense
Corporate development costs
Debt extinguishment
Other operating expense
Income before taxes
Income tax provision
Net income
Dividends on preferred stock and accretion of discount
Net income allocable to common stockholders
Basic
Diluted
2013
2012
2011
$129,138
12,834
1,692
2,867
391
$130,526
18,123
498
1,080
60
$130,922
26,486
683
535
16
146,922
150,287
158,642
7,180
1,874
994
1,342
60
3,771
113
15,334
131,588
7,172
124,416
24,350
17,208
15,528
3,980
3,801
3,516
1,959
270
9,539
80,151
70,866
13,486
8,322
5,924
4,016
3,492
2,536
2,428
717
—
21,142
13,101
6,252
757
1,480
—
1,296
402
23,288
19,131
9,972
1,197
1,375
—
—
930
32,605
126,999
32,053
126,037
27,996
94,946
98,041
22,935
17,133
13,310
2,846
—
21,425
2,340
1,544
5,160
86,693
66,047
13,081
7,163
5,581
4,109
5,658
6,855
2,656
—
3,662
18,533
21,026
16,371
11,881
1,524
—
4,878
2,460
2,035
3,413
63,588
59,823
12,054
6,915
5,340
5,829
5,949
8,896
4,302
780
—
17,589
132,929
133,345
127,477
71,638
24,756
46,882
1,633
48,294
16,983
31,311
2,770
34,152
11,475
22,677
2,770
$ 45,249
$ 28,541
$ 19,907
$
$
5.13
5.06
$
$
3.28
3.25
$
$
2.31
2.28
The accompanying notes are an integral part of these Consolidated Financial Statements.
54
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net Income
Other comprehensive (loss) income:
Unrealized (losses) gains on securities available for sale
Tax benefit (expense)
Net of tax amount
Reclassification adjustment for gains included in net income
Tax expense
Net of tax expense
Total other comprehensive (loss) income
Total comprehensive income
2013
2012
2011
$ 46,882
$ 31,311
$22,677
(51,535)
19,478
24,114
(9,090)
12,373
(4,671)
(32,057)
15,024
7,702
(3,516)
1,336
(21,425)
8,142
(4,878)
1,854
(2,180)
(13,283)
(3,024)
(34,237)
1,741
4,678
$ 12,645
$ 33,052
$27,355
The accompanying notes are an integral part of these Consolidated Financial Statements
55
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
Interest-bearing deposits in other banks
Total cash and cash equivalents
Investment securities, available-for-sale
Loans held-for-sale
Loans, net of allowance for loan losses of $41,244 at December 31, 2013 and $43,922 at December 31,
2012
Reverse mortgage related assets
Bank-owned life insurance
Stock in Federal Home Loan Bank of Pittsburgh, at cost
Assets acquired through foreclosure
Accrued interest receivable
Premises and equipment
Goodwill
Other intangible assets
Other assets
Total assets
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing demand
Interest-bearing demand
Money market
Savings
Time
Jumbo certificates of deposit
Total customer deposits
Brokered deposits
Total deposits
Federal funds purchased and securities sold under agreements to repurchase
Federal Home Loan Bank advances
Trust preferred borrowings
Senior debt
Reverse mortgage trust bonds payable
Other borrowed funds
Accrued interest payable
Other liabilities
Total liabilities
Stockholders’ Equity:
Serial preferred stock $0.01 par value, 7,500,000 shares authorized; none issued at December 31, 2013 and
52,625 at December 31, 2012
Common stock $0.01 par value, 20,000,000 shares authorized; issued 18,476,003 at December 31, 2013 and
18,354,055 at December, 31 2012
Capital in excess of par value
Accumulated other comprehensive (loss) income
Retained earnings
Treasury stock at cost, 9,580,569 shares at December 31, 2013 and December 31, 2012
Total stockholders’ equity
Total liabilities and stockholders’ equity
2013
2012
$
94,734
389,360
332
484,426
817,115
31,491
$
93,629
406,627
631
500,887
900,859
12,758
2,904,976
37,328
63,185
35,869
4,532
10,798
35,178
32,235
6,743
51,887
2,723,916
19,229
62,915
31,165
4,622
9,652
38,257
28,146
5,174
37,568
$4,515,763
$4,375,148
$ 650,256
638,403
887,715
383,731
236,965
221,145
$ 631,026
538,195
933,901
389,977
316,986
294,237
3,018,215
168,727
3,186,942
97,000
638,091
67,011
55,000
21,990
24,739
838
41,102
3,104,322
170,641
3,274,963
110,000
376,310
67,011
55,000
—
28,945
1,099
40,766
4,132,713
3,954,094
—
1
185
178,477
(21,294)
473,962
(248,280)
184
222,978
12,943
433,228
(248,280)
383,050
421,054
$4,515,763
$4,375,148
The accompanying notes are an integral part of these Consolidated Financial Statements.
56
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(In Thousands)
Balance, December 31, 2010
Net income
Other comprehensive income
Cash dividend, $0.48 per share
Issuance of common stock, including
proceeds from exercise of common stock
options
Stock-based compensation expense
Issuance of restricted stock
Tax benefit from exercises of common stock
options (1)
Preferred stock cash dividends
Preferred stock discount accretion
Serial
Preferred
Stock
Common
Stock
Capital in
Excess of
Par Value
Accumulated
Other
Comprehensive
(Loss) Income
Retained
Earnings
Treasury
Stock
Total
Stockholders’
Equity
$
1
—
—
—
—
—
—
—
—
—
$180
—
—
—
$216,316
—
—
—
$ 6,524
—
4,678
—
2
—
—
—
—
—
1,122
1,343
470
776
—
136
—
—
—
—
—
—
$393,081 $(248,280)
22,677
—
(4,126)
—
—
—
—
(2,631)
(136)
—
—
—
—
—
—
—
—
—
$367,822
22,677
4,678
(4,126)
1,124
1,343
470
776
(2,631)
—
Balance, December 31, 2011
$
1
$182
$220,163
$ 11,202
$408,865 $(248,280)
$392,133
Net income
Other comprehensive income
Cash dividend, $0.48 per share
Issuance of common stock, including
proceeds from exercise of common stock
options
Stock-based compensation expense
Issuance of restricted stock
Tax benefit from exercises of common stock
options (1)
Preferred stock cash dividends
Preferred stock discount accretion
Repurchase of Warrant
—
—
—
—
—
—
—
—
—
—
2
—
—
—
—
—
—
—
—
—
—
—
—
—
1,741
—
31,311
—
(4,179)
2,501
1,577
399
—
138
(1,800)
—
—
—
—
—
—
—
—
—
—
—
(2,631)
(138)
—
—
—
—
—
—
—
—
—
—
—
31,311
1,741
(4,179)
2,503
1,577
—
399
(2,631)
—
(1,800)
Balance, December 31, 2012
$
1
$184
$222,978
$ 12,943
$433,228 $(248,280)
$421,054
Net income
Other comprehensive loss
Cash dividend, $0.48 per share
Issuance of common stock including
proceeds from exercise of common stock
options
Stock-based compensation expense
Tax benefit from exercises of common
stock options (1)
Preferred stock cash dividends
Preferred stock discount accretion
Redemption of preferred stock
—
—
—
—
—
—
—
—
(1)
1
—
—
—
—
—
—
—
—
—
—
—
—
(34,237)
—
46,882
—
(4,224)
4,352
2,938
683
—
150
(52,624)
—
—
—
—
—
—
—
—
—
(1,774)
(150)
—
—
—
—
—
—
—
—
—
—
46,882
(34,237)
(4,224)
4,353
2,938
683
(1,774)
—
(52,625)
Balance, December 31, 2013
$—
$185
$178,477
$(21,294)
$473,962 $(248,280)
$383,050
(1) Net of deferred tax adjustments for expired options
The accompanying notes are an integral part of these Consolidated Financial Statements
57
Year Ended December 31,
2013
2012
2011
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
Operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses
Depreciation of premises and equipment
Amortization, net
(Increase) decrease in accrued interest receivable
(Increase) decrease in other assets
Origination of loans held-for-sale
Proceeds from sales of loans held-for-sale
Gain on mortgage banking activity, net
Gain on mark to market adjustment on reverse mortgage trading asset
Gain on sale of securities, net
Reverse mortgage consolidation gain
Stock-based compensation expense
Excess tax benefits from share based payment arrangements
Decrease in accrued interest payable
Increase (decrease) in other liabilities
Loss on sale of premises and equipment
Loss on sale of assets acquired through foreclosure and valuation adjustments, net
Increase in value of bank-owned life insurance
Deferred income tax (benefit) expense
(Increase) decrease in capitalized interest, net
$ 46,882
$ 31,311
$ 22,677
7,172
6,007
11,329
(1,146)
5,470
(250,083)
254,135
(3,980)
125
(3,641)
(3,801)
3,621
(683)
(261)
(12,465)
—
868
(270)
755
(2,653)
32,053
5,139
12,261
2,091
2,491
(190,961)
222,369
(2,846)
(125)
(21,300)
—
1,976
(399)
(811)
4,763
—
3,701
(1,544)
3,591
(728)
27,996
5,015
6,123
22
(3,076)
(97,883)
104,133
(1,524)
—
(4,878)
—
1,810
(776)
(1,407)
13,152
115
4,049
(2,035)
2,978
(143)
Net cash provided by operating activities
57,381
103,032
76,348
Investing activities:
Maturities and calls of investment securities
Sales of investment securities available for sale
Purchases of investment securities available for sale
Repayments of investment securities available for sale
Repayments on reverse mortgages
Disbursements for reverse mortgages
Cash received in consolidation of reverse mortgage securitization trust
Acquisition of Array/Arrow, net of cash acquired
Net increase in loans
Payment of bank-owned life insurance
Net (increase) decrease in stock of Federal Home Loan Bank of Pittsburgh
Sales of assets acquired through foreclosure, net
Proceeds from the sale of premises and equipment
Investment in premises and equipment, net
Net cash used for investing activities
(continued on next page)
770
274,070
(335,584)
90,041
4,929
(391)
5,833
(4,029)
(207,043)
—
(4,704)
6,511
—
(2,863)
9,039
769,982
(941,376)
131,212
—
(189)
—
—
(96,435)
2,021
4,591
14,016
—
(8,111)
11,943
335,959
(621,138)
175,691
264
(441)
—
—
(189,701)
2,886
1,780
11,611
824
(10,494)
(172,460)
(115,250)
(280,816)
58
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
Year Ended December 31,
2013
2012
2011
(In Thousands)
Financing Activities:
Net increase (decrease) in demand and savings deposits
Increase (decrease) in time deposits
Increase (decrease) in brokered deposits
Increase (decrease ) in Loan payable
Repayment of reverse mortgage trust bonds payable
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 from FHLB advances
Repayments of FHLB advances
Repayment of unsecured debt
Issuance of Senior Debt
Dividends paid
Issuance of common stock and exercise of common stock options
Redemption of preferred stock
Repurchase of common stock warrants
Excess tax benefits from share-based payment arrangements
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
Loans transferred from portfolio to held-for-sale
Net change in accumulated other comprehensive income
Fair value of assets acquired
Fair value of liabilities assumed
Fair value of assets consolidated
Fair value of liabilities consolidated
Non-cash goodwill adjustments, net
$
$
63,498
(153,113)
(1,914)
(698)
(4,349)
$
393,493
(147,372)
(117,361)
1,727
285,398
(23,381)
38,804
—
21,291,625
19,027,675
13,350,000
(21,304,625)
48,790,848
(48,529,067)
—
—
(5,998)
4,353
(52,625)
—
683
98,618
(16,461)
500,887
(18,967,675)
39,981,624
(40,143,996)
(30,000)
52,681
(6,810)
2,503
—
(1,800)
399
45,088
32,870
468,017
(13,400,000)
14,046,295
(13,996,572)
—
—
(6,718)
1,124
—
—
776
295,726
91,258
376,759
$
$
484,426
$
500,887
$
468,017
$
15,696
21,868
7,289
9,131
(34,237)
12,817
10,127
41,397
26,339
(160)
$
24,099
13,806
9,953
31,987
1,741
—
—
—
—
—
34,012
3,150
18,331
—
4,678
—
—
—
—
1,401
The accompanying notes are an integral part of these Consolidated Financial Statements
59
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, 2013, served customers from our 52 offices located in Delaware (42), Pennsylvania (8),
Virginia (1), and Nevada (1).
In preparing the Consolidated Financial Statements, we are required to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses. Although our estimates contemplate current conditions
and how we expect them to change in the future, it is reasonably possible that actual conditions in 2014 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, investment in reverse
mortgage, income taxes 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 and its wholly owned
subsidiaries, WSFS Bank and Montchanin Capital Management, Inc. (“Montchanin”).
WSFS Bank has two wholly-owned subsidiaries, including WSFS Investment Group, Inc. (“WIG”) and Monarch
Entity Services LLC (“Monarch”). WIG markets various third-party insurance and securities products to Bank customers
through the Bank’s retail banking system. Monarch provides commercial domicile services which include employees,
directors, subleases and registered agent services in Delaware and Nevada.
Montchanin was formed to provide asset management products and services. 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 has approximately $614 million in assets under management at
December 31, 2013.
WSFS Capital Trust III (“the Trust”) is our unconsolidated subsidiary, 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).
WSFS Capital Trust I invested all of the proceeds from the sale of the Pooled Floating Rate Capital Securities in our
Junior Subordinated Debentures.
In addition to the subsidiaries listed above, as of December 31, 2013 we also had one consolidated variable interest
entity (“VIE”), SASCO 2002-RM1 (“SASCO”), which is a reverse mortgage securitization trust.
Whenever necessary, reclassifications have been made to the prior years’ Consolidated Financial Statements to
conform to the current year’s presentation. All significant intercompany transactions were eliminated in consolidation.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash, cash in non-owned ATMs, amounts
due from banks, federal funds sold and securities purchased under agreements to resell.
60
Debt and Equity Securities
Investments in equity securities that have a readily determinable fair value and investments in debt securities are
classified into three categories and accounted for as follows:
• Debt securities with the positive intention to hold to maturity are classified as “held-to-maturity” and reported at
amortized cost.
• Debt and equity securities purchased with the intention of selling them in the near future are classified as
“trading securities” and reported at fair value, with unrealized gains and losses included in earnings.
• Debt and equity securities not classified in either of the above are classified as “available-for-sale securities”
and reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of tax, as a
separate component of stockholders’ equity.
Debt and equity securities include mortgage-backed securities, municipal bonds, U.S. Government and agency
securities and certain equity securities. Premiums and discounts on debt and equity securities, held-to-maturity and
available-for-sale, are recognized in interest income using a level yield method over the period to expected maturity. The
fair value of debt and equity securities is primarily obtained from third-party pricing services. Implicit in the valuation are
estimated prepayments based on historical and current market conditions.
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 its fair value may be 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 “credit” and “other” components.
The “other” component of the OTTI is included in other comprehensive income/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. We
are required to use our 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.
Loans
Loans are stated net of deferred fees and costs. Interest income on loans is recognized using the level yield method.
Loan origination fees, commitment fees and direct loan origination costs are deferred and recognized over the life of the
related loans using a level yield method over the period to maturity.
A loan is impaired when, based on current information and events, it is probable we 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. In addition, all loans restructured in a troubled debt restructuring are considered to be
impaired. Impaired loans include loans within our commercial (investor and owner-occupied), 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.
Past Due and Nonaccrual Loans
A loan is considered to be past due on the day after a principal or interest payment is due. Nonaccrual loans are those
on which the accrual of interest has ceased. Loans are placed on nonaccrual status immediately if, in our opinion,
collection is doubtful, or when principal or interest is contractually past due 90 days or more and the loan is not well
secured or in the process of collection. Interest accrued but not collected at the date a loan is placed on nonaccrual status is
reversed and charged against interest income. In addition, the accretion 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 our assessment of the ultimate collectability of the loan. Loans are returned to an accrual
61
status when we assess that the borrower has the ability to make all principal and interest payments in accordance with the
terms of the loan (i.e.
including a consistent repayment record, generally six consecutive payments, has been
demonstrated).
Allowances for Loan Losses
We maintain allowances for loan losses and charge losses to these allowances when such losses are realized. The
determination of the allowance for loan losses requires significant judgment reflecting our best estimate of impairment
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 have established the loan loss allowance in accordance with guidance provided by the SEC’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 impaired loans, allowances for pools of homogeneous loans,
adjustments for qualitative and environmental factors and allowances for model estimation and complexity risk.
Impairment of troubled debt restructurings are measured at the present value of estimated future cash flows using the
loan’s effective rate at inception or the fair value of the underlying collateral if the loan is collateral dependent. Troubled
debt restructures consist of concessions granted to borrowers facing financial difficulty.
For additional detail regarding the provision for loan losses, see Note 5 to the Consolidated Financial Statements.
Loans Held-for-Sale
Loans held-for-sale are carried at the lower of cost or fair value of such loans in the aggregate or, in some cases, of
individual loans.
Assets Acquired Through Foreclosure
Assets acquired through foreclosure are recorded at the lower of the recorded investment in the loans or their 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 or disposing of 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. Loan workout and OREO expenses include costs of
holding and operating the assets, net gains or losses on sales of the assets and provisions for losses to reduce such assets to
fair value less estimated disposal costs. During 2013, we recorded $592,000 in charges (including write-downs and net
losses on sales of assets) related to assets acquired through foreclosure (REO). These charges were $4.3 million and $5.9
million for the years ended December 31, 2012 and 2011, respectively.
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” based on similar
characteristics and recognizing income based on the estimated effective yield of the pools. 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 to reflect the revised rate of return. Because of this highly specialized accounting, the
recorded value of reverse mortgages can result in significant volatility associated with estimations. As a result, income
recognition can vary significantly from reporting period to reporting period.
For additional detail regarding reverse mortgages, see Note 6 to the Consolidated Financial Statements.
62
Premises and Equipment
is stated at cost
Premises and equipment
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.
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.
For additional information regarding our goodwill and other intangible assets, see Notes 2 & 8 to the Consolidated
Financial Statements.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
We enter into sales of securities under agreements to repurchase. Securities sold under agreements to repurchase 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 reserve for standby letters of credit and charge losses to this contingency when such
losses are realized. The determination of the loss contingency reserve for standby letters of credit requires significant
judgment reflecting management’s best estimate of probable losses related to standby letters of credit.
Loss Contingency for Unfunded Commitments
We maintain a loss contingency reserve for unfunded commitments. The determination of the loss contingency reserve for
unfunded commitments requires significant judgment reflecting managements best estimate of probable losses related to
unfunded commitments.
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.
We account for income taxes in accordance with Financial Accounting Standard Board (“FASB”) Accounting
Standards Codification (“ASC”) 740, Income Taxes. 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.
63
Earnings Per Share
The following table shows the computation of basic and diluted earnings per share:
Numerator:
Net income allocable to common shareholders
Denominator:
Denominator for basic earnings per share — weighted average
shares
Effect of dilutive employee stock options, restricted stock and
warrants
2013
2012
2011
(In Thousands, Except Per Share Data)
$45,249
$28,541
$19,907
8,818
8,712
8,606
125
78
111
Denominator for diluted earnings per share — adjusted weighted
average shares and assumed exercise
8,943
8,790
8,717
Earnings per share:
Basic:
Net income allocable to common shareholders
Diluted:
Net income allocable to common shareholders
$
5.13
$
3.28
$
2.31
$
5.06
$
3.25
$
2.28
Outstanding common stock equivalents having no dilutive effect
441
276
534
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2013, the FASB issued an update (“ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of
Disclosures about Offsetting Assets and Liabilities”). The ASU amends Update 2011-11 to clarify that the scope applies to
derivatives, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions that are
either offset
to master netting or similar
arrangements. Other types of financial assets and liabilities subject to master netting or similar arrangements are not
subject to the disclosure requirements in Update 2011-11. The amendments are effective for fiscal years beginning on or
after January 1, 2013, and interim periods within those annual periods. The adoption of this amendment did not have a
material effect on our Consolidated Financial Statements.
in accordance with Section 210-20-45 or Section 815-10-45 or subject
In January 2013, the FASB issued an update (“ASU 2013-02, Comprehensive Income (Topic 220): Reporting of
Amounts Reclassified Out of Accumulated Other Comprehensive Income”). The ASU requires an entity to provide
information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an
entity is required to present, either on the face of the statement where net income is presented or in the notes, significant
amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only
if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same
reporting period. The amendments are effective prospectively for reporting periods beginning after December 15, 2012.
The adoption of this guidance did not have a material impact on our Financial Statements
In July 2013, the FASB issued ASU No. 2013-10, “Inclusion of the Fed Funds Effective Swap Rate (or Overnight
Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes” These amendments allow the Fed Funds
Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes, in addition to the
current benchmark rates of UST (the rate on direct Treasury obligations of the U.S. government) and LIBOR (the London
Interbank Offered Rate on swaps). The amendments were effective on a prospective basis for new or redesignated hedging
relationships on July 17, 2013. The adoption of this amendment did not have material effect on our Consolidated Financial
Statements.
In July 2013, the FASB issued ASU No. 2013-11, “Presentation of an Unrecognized Tax Benefit When a Net
Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,” to clarify the balance sheet
64
presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit
carryforward exists. The ASU requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, to be
presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar
tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss,
or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle
any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable
jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose,
the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with
deferred tax assets. The ASU is effective for fiscal years, and interim periods within those years, beginning after
December 15, 2013. The adoption is not expected to have a material effect on our Consolidated Financial Statements.
2. BUSINESS COMBINATIONS
First Wyoming Financial Corporation
On November 25, 2013, we announced that we entered into an Agreement and Plan of Reorganization, with First
Wyoming Financial Corporation, the parent company of The First National Bank of Wyoming (“First Wyoming”), in a
cash and stock transaction valued at approximately $64 million. As of September 30, 2013, First Wyoming operated 6
banking offices in Kent County, Delaware with $307.7 million in total assets and $249.7 million in total deposits. The
transaction is expected to be completed in the third quarter of 2014, subject to the satisfaction of customary closing
conditions, including regulatory approvals and the approval of the shareholders of First Wyoming Financial Corporation.
Array Financial Group, Inc. and Arrow Land Transfer Company Acquisition
On July 31, 2013, WSFS Bank completed the purchase of Array Financial Group, Inc. (“Array”), a Delaware Valley
mortgage banking company, specializing in a variety of residential mortgage and refinancing solutions, and Arrow Land
Transfer Company (“Arrow”), an abstract and title company that is a related entity to Array. This purchase will expand
our mortgage banking business while further increasing fee income. All Array and Arrow employees are now WSFS
Associates.
These companies were acquired through an asset purchase transaction for the purchase price of $8.0 million
(including a $1.4 million payment for the working capital of the two companies), $4.0 million of which will be earned
through a five-year earn out based on achieved earnings contribution targets. The fair value of this earn out is $2.6 million
as of December 31, 2013. Operating results of Array and Arrow are included in the Consolidated Financial Statements
since the date of acquisition.
The transaction was accounted for as a business combination using the acquisition method of accounting and,
accordingly, assets acquired, liabilities assumed and consideration paid were recorded at their estimated fair values as of the
acquisition date. The excess of consideration paid over the fair value of net assets acquired was recorded as goodwill, which
will not be amortizable for book purposes, however will be deductible for tax purposes. We allocated the total balance of
goodwill to our WSFS Bank segment. We also recognized $2.4 million in intangible assets (consisting mainly of customer
relationships) which will be amortized over 7 years utilizing the straight-line method.
65
In connection with the acquisition, the following table summarizes the combined fair value of the assets and
liabilities acquired:
(In Thousands)
Consideration Paid:
Cash paid at closing
Fair value of contingent consideration
Value of consideration
Assets acquired (at Fair Value):
Cash
Accounts receivable
Fixed assets
Loans Held-For-Sale
Intangible assets
Total assets
Liabilities assumed (at Fair Value):
Warehouse line of credit
Accounts payable
Total Liabilities
Net assets acquired
$ 5,374
2,590 (1)
7,964
1,185
220
148
10,096
2,353
14,002
10,067
60
10,127
3,875
Goodwill resulting from acquisition of Array and Arrow
$ 4,089 (1)
(1) The fair value of contingent consideration and the goodwill resulting from the acquisition were each reduced by $160 from the amounts reported on
Form 10-Q for the quarter ended September 30, 2013 as a result of adjustments to these estimates.
The fair values listed above are estimates and are subject to adjustment as management completes its financial
analysis of potential derivatives purchased and in existence at the time of the acquisition. However, while they are not
expected to be materially different than those shown, any adjustments to the estimates will be reflected retroactively, as of
the date of the transaction.
66
3. INVESTMENT SECURITIES
The following tables detail the amortized cost and the estimated fair value of our investment securities available-for-
sale and trading securities:
Available-for-sale securities:
December 31, 2013
State and political subdivisions
U.S. Government and government sponsored enterprises (“GSE”)
Collateralized Mortgage Obligation (“CMO”) (1)
Federal National Mortgage Association (“FNMA”) Mortgage-Backed
Securities (“MBS”)
Federal Home Loan Mortgage Corporation MBS (“FHLMC”)
Government National Mortgage Association MBS (“GNMA”)
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(In Thousands)
$
$105,354
32,082
103,064
382,909
129,460
97,830
257
93
28
20
29
743
$ (5,426) $100,185
32,158
97,557
(17)
(5,535)
(15,801)
(4,994)
(2,981)
367,128
124,495
95,592
$850,699
$ 1,170
$(34,754) $817,115
December 31, 2012
State and political subdivisions
GSE
CMO (1)
FNMA MBS
FHLMC MBS
GNMA MBS
$
3,120
46,726
248,248
396,910
58,596
129,288
$
89
266
4,353
9,588
1,171
3,221
$ — $
3,209
46,990
252,300
406,255
59,650
132,455
(2)
(301)
(243)
(117)
(54)
(1) Agency CMOs classified as available-for-sale totaled $103.1 million and $248.2 million as of December 31, 2013 and 2012, respectively.
The scheduled maturities of investment securities available-for-sale at December 31, 2013 and December 31, 2012
were as follows:
$882,888
$18,688
$
(717) $900,859
2013 (1)
Within one year
After one year but within five years
After five years but within ten years
After ten years
2012 (1)
Within one year
After one year but within five years
After five years but within ten years
After ten years
Available-for Sale
Amortized
Cost
Fair
Value
(In Thousands)
$ 16,319
19,761
229,033
585,586
$ 16,378
19,986
217,911
562,840
$850,699
$817,115
$ 19,001
28,855
321,103
513,929
$ 19,115
29,034
329,580
523,130
$882,888
$900,859
(1) Actual maturities could differ from contractual maturities.
All securities were AAA-rated at the time of purchase and remained at investment grade at December 31, 2013. All
securities were evaluated for OTTI at December 31, 2013 and 2012. The result of this evaluation showed no OTTI during
2013. The weighted average duration of MBS was 5.3 years at December 31, 2013.
67
MBS have expected maturities that differ from their contractual maturities. These differences arise because
borrowers have the right to call or prepay obligations with or without a prepayment penalty.
At December 31, 2013, investment securities with fair market values aggregating $447.7 million were pledged as
collateral for retail customer repurchase agreements, municipal deposits, and other obligations. From time to time,
investment securities are also pledged as collateral for FHLB borrowings. There were no FHLB pledged investment
securities at December 31, 2013 or 2012.
During 2013, we sold $274.1 million of investment securities categorized as available-for-sale for net gains of $3.5
million, of which $3.7 million was gain and $230,000 was losses. In 2012, proceeds from the sale of investment securities
available-for-sale were $770.0 million and resulted in net gains of $21.3 million. The cost basis of all investment
securities sales is based on the specific identification method.
As of December 31, 2013, our investment securities portfolio had remaining unamortized premiums of $25.3 million
and $63,000 of unaccreted discounts.
At December 31, 2013, we owned investment securities totaling $747.7 million in which the amortized cost basis
exceeded fair value. Total unrealized losses on those securities were $34.8 million at December 31, 2013. The temporary
impairment is the result of changes in market interest rates subsequent to the purchase of the securities. Our investment
portfolio is reviewed each quarter for indications of other than temporary impairment. This review includes analyzing the
length of time and the extent to which the fair value has been lower than the amortized cost, the financial condition and
near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and our
intent and ability to hold the investment for a period of time sufficient to allow for full recovery of the unrealized loss. We
evaluate our intent and ability to hold securities based upon our investment strategy for the particular type of security and
our cash flow needs, liquidity position, capital adequacy and interest rate risk position. 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.
For these investment securities with unrealized losses, the table below shows our 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, 2013.
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
(In Thousands)
Available-for-sale securities:
State and political subdivisions
GSE
CMO
FNMA MBS
FHLMC MBS
GNMA MBS
$ 83,036
3,972
73,109
346,266
116,732
57,076
$ 5,426
13
4,173
14,386
4,548
1,897
$ — $ — $ 83,036
5,973
94,699
364,066
124,039
75,905
2,001
21,590
17,800
7,307
18,829
4
1,362
1,415
446
1,084
$ 5,426
17
5,535
15,801
4,994
2,981
Total temporarily impaired investments
$680,191
$30,443
$67,527
$4,311
$747,718
$34,754
68
For these investment securities with unrealized losses, the table below shows our 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, 2012.
Available-for-sale securities:
State and political subdivisions
GSE
CMO
FNMA MBS
FHLMC MBS
GNMA MBS
Total temporarily impaired investments
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
Fair
Value
Unrealized
Loss
(In Thousands)
$ —
2,008
40,358
43,696
13,884
10,029
$109,975
$—
2
268
243
117
54
$684
$ —
—
1,364
—
—
—
$1,364
$—
—
33
—
—
—
$ 33
$ —
2,008
41,722
43,696
13,884
10,029
$—
2
301
243
117
54
$111,339
$717
4. LOANS
The following table details our loan portfolio by category:
December 31,
(In Thousands)
Commercial
Owner occupied commercial
Commercial Mortgages
Construction
Residential
Consumer
Less:
Deferred fees, net
Allowance for loan losses
Net loans
2013
2012
$ 810,882
786,360
725,193
106,074
221,520
302,234
$ 704,491
770,581
631,365
133,375
243,627
289,001
2,952,263
2,772,440
6,043
41,244
4,602
43,922
$2,904,976
$2,723,916
Nonaccruing loans aggregated $31.0 million, $47.8 million and $71.1 million at December 31, 2013, 2012 and 2011,
respectively. If interest on all such loans had been recorded in accordance with contractual terms, net interest income
would have increased by $1.0 million in 2013, $1.6 million in 2012, and $3.1 million in 2011.
The total amounts of loans serviced for others were $229.8 million, $263.4 million and $308.1 million at
December 31, 2013, 2012 and 2011, respectively, which consisted of residential first mortgage loans and reverse
mortgage loans. We received fees from the servicing of loans of $342,000, $359,000 and $445,000 during 2013, 2012 and
2011, 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 we acquire or originate. The value of these
servicing rights was $419,000 and $240,000 at December 31, 2013 and 2012, respectively. Mortgage loans serviced for
others are not included in loans in the accompanying Consolidated Statements of Condition. Changes in the valuation of
these servicing rights resulted in net income of $178,000 during 2013 and net income of $24,000 during 2012. Revenues
from originating, marketing and servicing mortgage loans as well as valuation adjustments related to capitalized mortgage
servicing rights are included in mortgage banking activities, net in the Consolidated Statements of Operations.
69
Accrued interest receivable on loans outstanding was $7.8 million and $7.6 million at December 31, 2013 and 2012,
respectively.
5. ALLOWANCE FOR LOAN LOSSES AND CREDIT QUALITY INFORMATION
Allowance for Loan Losses
We maintain an allowance for loan losses and charge losses to this allowance when such losses are realized. We
established our loan loss allowance in accordance with guidance provided in the Securities and Exchange Commission’s
Staff Accounting Bulletin 102 (“SAB 102”). The determination of the allowance for loan losses requires significant,
complex and difficult judgments reflecting our best estimate of impairment related to specifically identified impaired
loans as well as probable loan losses in the remaining loan portfolio. Our loan officers and risk managers meet at least
quarterly to discuss and review the conditions and risks associated with individual problem loans. In addition, various
regulatory agencies and loan review consultants periodically review our loan ratings and allowance for loan losses. The
following are included in the allowance for loan losses:
•
Specific reserves for impaired loans
• Allowances for pools of homogenous loans based on historical loss experience
• Adjustments for qualitative and environmental factors
• Allowance for model estimation and complexity risk
Specific reserves are established for impaired loans where we have identified significant conditions or circumstances
related to specific credits that indicate an amount of impairment. Unless loans are well-secured and collection is
imminent, all loans that are 90 days past due are deemed impaired. Reserves for impaired loans are charged-off when a
probable loss has been confirmed. Estimated losses are based on collateral values, estimates of future cash flows or
market valuations. During 2013, net charge-offs totaled $9.9 million, or 0.34%, of average loans annualized, compared to
$41.2 million, or 1.49%, of average loans in 2012. We charge loans off when they are deemed to be uncollectable.
Allowances for pooled homogeneous loans, that are not deemed impaired, are based on historical net loss experience.
Estimated losses for pooled portfolios are determined differently for commercial loan pools and retail loan pools.
Commercial loans are pooled into following segments: Business Loans (Commercial and Industrial Loans), Commercial
Real Estate — Owner-Occupied, Commercial Real Estate – Investor, and Construction Loans. Each pool is further
segmented by internally assessed risk ratings. Loan losses for commercial loans are estimated by determining the
probability of default and expected loss severity upon default. Probability of default is calculated based on the historical
rate of migration to impaired status during the last 15 quarters. Loss severity is calculated as the actual loan losses (net of
recoveries) on impaired loans in the respective pool during the same time frame. Retail loans are pooled into the following
segments: residential mortgage loans, home equity secured loans, and all other consumer loans. Pooled reserves for retail
loans are calculated based solely on the previous three year average net loss rate.
Qualitative and environmental adjustment factors are taken into consideration when determining the above reserve
estimates or core reserves. These adjustment factors are based upon our evaluation of various current internal and external
conditions including:
• Assessment of current underwriting policies, staff, and portfolio mix
•
Internal trends of delinquency, non-accrual and criticized loans by segment
• Assessment of risk rating accuracy, control and regulatory assessments/environment
• General economic conditions – locally and nationally
• Market trends impacting collateral values
• Competitive environment as it could impact loan structure and underwriting
The above factors are based on their relative standing compared to the period which historic losses are used in core
reserve estimates and current directional trends. Each individual qualitative and environmental factor in our model can
add or subtract to core reserves.
70
The final component of the allowance is a reserve for model estimation and complexity risk. The calculation of
reserves is generally quantitative; however, qualitative estimates of valuations and risk assessment are necessary. We
review the qualitative estimates of valuation factors quarterly and adjust based on current trends.
The following tables provide an analysis of the allowance for loan losses and loan balances as of and for the year
ended December 31, 2013 and December 31, 2012:
Owner
Occupied
Commercial
Commercial
Commercial
Mortgages Construction Residential Consumer
Complexity
Risk (1)
Total
(In Thousands)
Twelve months ended December 31,
2013
Allowance for loan losses
Beginning balance
Charge-offs
Recoveries
Provision (credit) for
loan losses
Ending balance
Period-end allowance allocated to:
Loans individually evaluated for
impairment
Loans collectively evaluated for
impairment
Ending balance
Period-end loan balances evaluated
for:
Loans individually evaluated for
impairment
Loans collectively evaluated for
impairment
Ending balance
$ 13,663
(2,636)
1,003
$
6,108
(1,225)
128
$
8,079
(1,915)
685
$
6,456
(1,749)
989
$
3,124 $
(1,226)
122
5,631
(4,913)
887
$ 861
—
—
$
43,922
(13,664)
3,814
721
2,627
83
(2,370)
1,058
4,889
164
7,172
$ 12,751
$
7,638
$
6,932
$
3,326
$
3,078 $
6,494
$1,025
$
41,244
$
1,781
$
12
$
1,987
$ — $
989 $
134
— $
4,903
10,970
7,626
4,945
3,326
2,089
6,360
1,025
36,341
$ 12,751
$
7,638
$
6,932
$
3,326
$
3,078 $
6,494
$1,025
$
41,244
$
5,003
$
5,197
$
8,661
$
1,158
$ 17,852 $
5,411
— $
43,282 (2)
805,879
781,163
716,532
104,916
203,668
296,823
—
2,908,981
$810,882
$786,360
$725,193
$106,074
$221,520 $302,234
— $2,952,263
(1) Represents the portion of the allowance for loan losses established to account for the inherent complexity and uncertainty of estimates.
(2) The difference between this amount and nonaccruing loans at December 31, 2013 and December 31, 2012, represents accruing troubled debt
restructured loans of $12.3 million and $10.1 million, respectively.
71
Owner
Occupied
Commercial
Commercial
Commercial
Mortgages Construction Residential Consumer
Complexity
Risk
Total
(In Thousands)
Twelve months ended December 31,
2012
Allowance for loan losses
Beginning balance
Charge-offs
Recoveries
Provision (credit) for Loan Losses
$ 15,067
(12,806)
1,536
9,866
$
9,235
(5,076)
13
1,936
$
7,556
(6,517)
405
6,635
$
4,074
(10,820)
1,761
11,441
$
6,544
(3,857)
176
261
$ 10,604
(6,726)
700
1,053
Ending balance
$ 13,663
$
6,108
$
8,079
$
6,456
$
3,124
$
5,631
$—
—
—
861
$861
$
53,080
(45,802)
4,591
32,053
$
43,922
Period-end allowance allocated to:
Loans individually evaluated for
impairment
Loans collectively evaluated for
impairment
Ending balance
Period-end loan balances evaluated
for:
Loans individually evaluated for
impairment
Loans collectively evaluated for
impairment
Ending balance
$
2,100
$
1
$
1,887
$
28
$
919
$
16
$—
$
4,951
11,563
6,107
6,192
6,428
2,205
5,615
861
38,971
$ 13,663
$
6,108
$
8,079
$
6,456
$
3,124
$
5,631
$861
$
43,922
$
4,861
$ 14,001
$ 12,634
$
1,547
$ 18,483
$
6,329
$—
$
57,855
699,630
756,580
618,731
131,828
225,144
282,672
$704,491
$770,581
$631,365
$133,375
$243,627
$289,001
—
$—
2,714,585
$2,772,440
Commercial (2)
Commercial
Mortgages Construction Residential Consumer
Total
(In Thousands)
Twelve months ended December 31, 2011
Allowance for credit losses
Beginning balance
Charge-offs
Recoveries
Provision (credit) for Loan Losses
Ending balance
Period-end allowance allocated to:
Loans individually evaluated for impairment
Loans collectively evaluated for impairment
Ending balance
Period-end loan balances evaluated for:
Loan individually evaluated for impairment
Loans collectively evaluated for impairment
$
$
$
$
26,480
(9,419)
897
6,344
$ 10,564
(7,446)
334
4,104
$ 10,019
(11,602)
582
5,075
$
4,028
(3,165)
211
5,470
$
9,248 $
(6,201)
554
7,003
60,339
(37,833)
2,578
27,996
24,302
$
7,556
$
4,074
$
6,544
$ 10,604 $
53,080
2,630
21,672
24,302
$
$
295
7,261
7,556
$
$
723
3,351
4,074
$
$
964
5,580
$
101 $
10,503
4,713
48,367
6,544
$ 10,604 $
53,080
$
23,193
1,437,619
$ 15,814
610,925
$ 22,124
84,144
$ 16,227
257,878
$
2,621 $
79,979 (1)
288,358
2,678,924
Ending balance
$1,460,812
$626,739
$106,268
$274,105
$290,979 $2,758,903
(1) The difference between this amount and nonaccruing loans at December 31, 2011, represents accruing troubled debt restructured loans of $8.9
million.
(2) Prior to 2012, Owner Occupied Commercial loans were included in Commercial Loans
Non-Accrual and Past Due Loans
Nonaccruing loans are those on which the accrual of interest has ceased. We discontinue accrual of interest on
originated loans after payments become more than 90 days past due, or earlier if we do not expect the full collection of
principal or interest in accordance with the terms of the loan agreement is probable. 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 accretion of
net deferred loan fees is suspended when a loan is placed on nonaccrual status. Subsequent cash receipts are applied either
72
to the outstanding principal balance or recorded as interest income, depending on our assessment of the ultimate
collectability of principal and interest. Loans greater than 90 days past due and still accruing are defined as loans
contractually past due 90 days or more as to principal or interest payments, but remain in accrual status because they are
considered well secured and in the process of collection.
The following tables show our nonaccrual and past due loans at the dates indicated:
At Dec. 31, 2013
(In Thousands)
Commercial
Owner occupied commercial
Commercial mortgages
Construction
Residential
Consumer
Total
30–59 Days
Past Due and
Still Accruing
60–89 Days
Past Due and
Still Accruing
Greater Than
90 Days
Past Due and
Still Accruing
Total Past
Due
And Still
Accruing
Accruing
Current
Balances
Nonaccrual
Loans
Total
Loans
$ 1,447
538
83
—
1,952
1,095
$ 5,115
$ —
—
1,049
—
1,348
177
$2,574
$ —
—
—
533
—
$ 1,447
538
1,132
—
3,833
1,272
$ 805,132
780,625
715,496
104,916
209,255
297,669
$ 4,303
5,197
8,565
1,158
8,432
3,293
$ 810,882
786,360
725,193
106,074
221,520
302,234
$ 533
$ 8,222
$2,913,093
$30,948
$2,952,263
% of Total Loans
0.17%
0.09%
0.02%
0.28%
98.67% 1.05%
100.00%
30–59 Days
Past Due and
Still Accruing
60–89 Days
Past Due and
Still Accruing
Greater Than
90 Days
Past Due and
Still Accruing
Total Past
Due
And Still
Accruing
Accruing
Current
Balances
Nonaccrual
Loans
Total Loans
$1,214
1,264
—
269
5,383
971
$9,101
$ —
—
—
70
606
526
$1,202
$ —
—
—
786
—
$ 1,214 $ 698,416
755,316
618,731
131,489
226,863
282,776
1,264
—
339
6,775
1,497
$ 4,861
14,001
12,634
1,547
9,989
4,728
$ 704,491
770,581
631,365
133,375
243,627
289,001
$ 786
$11,089 $2,713,591
$47,760
$2,772,440
0.33%
0.04%
0.03%
0.40%
97.88%
1.72%
100.00%
At Dec. 31, 2012
(In Thousands)
Commercial
Owner occupied commercial
Commercial mortgages
Construction
Residential
Consumer
Total
% of Total Loans
Impaired Loans
Loans for which it is probable we will not collect all principal and interest due according to contractual terms, which
is assessed based on the credit characteristics of the loan and/or payment status, are measured for impairment in
accordance with the provisions of FASB ASC 310, Receivables. The amount of impairment is required to be measured
using one of two methods: (1) the present value of expected future cash flows discounted at the loan’s effective interest
rate; or (2) 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 related allowance is allocated for the impairment.
73
The following tables provide an analysis of our impaired loans at December 31, 2013 and December 31, 2012:
2013
(In Thousands)
Commercial
Owner-Occupied Commercial
Commercial mortgages
Construction
Residential
Consumer
Total
2012
(In Thousands)
Commercial
Owner-Occupied Commercial
Commercial mortgages
Construction
Residential
Consumer
Total
Ending
Loan
Balances
$ 5,003
5,197
8,661
1,158
17,852
5,411
Loans with
No Related
Reserve (1)
Loan with
Related
Reserve
$ 2,362
5,184
2,784
1,158
9,750
4,767
$ 2,641
12
5,877
—
8,103
644
Related
Reserve
$1,781
12
1,987
—
989
134
Contractual
Principal
Balance
$13,013
8,293
16,566
1,563
20,153
6,056
Average
Loan
Balances
$ 5,347
11,542
10,444
968
18,047
5,455
$43,282
$26,005
$17,277
$4,903
$65,644
$51,803
Ending
Loan
Balances
$ 4,861
14,001
12,634
1,547
18,483
6,329
Loans with
No Related
Reserve (1)
$ 1,598
13,827
5,422
1,172
11,053
5,635
Loan with
Related
Reserve
$ 3,263
174
7,212
375
7,430
694
Related
Reserve
$2,100
1
1,887
28
919
16
Contractual
Principal
Balance
$12,060
18,658
22,192
17,711
20,771
7,265
Average
Loan
Balances
$ 4,993
16,856
10,233
11,239
16,917
4,514
$57,855
$38,707
$19,148
$4,951
$98,657
$64,752
(1) Reflects loan balances at or written down to their recorded investment.
Interest income of $922,000, $985,000 and $395,000 was recognized on impaired loans during 2013, 2012 and 2011,
respectively.
Credit Quality Indicators
Below is a description of each of our risk ratings for all commercial loans:
Pass. These borrowers presently show no current or potential problems and their loans are considered fully collectible.
We further segment Pass ratings into six classifications ranging from Substantially Risk Free (secured by marketable
securities within margin and cash secured) to Acceptable Risk.
Special Mention. Borrowers have potential weaknesses that deserve management’s close attention. Borrowers in this
category may be experiencing adverse operating trends, e.g.: declining revenues or margins, high leverage, tight liquidity,
or increasing inventory without increasing sales. These adverse trends can have a potential negative effect on the
borrower’s repayment capacity. These assets are not adversely classified and do not expose the Bank to significant risk
that would warrant a more severe rating. Borrowers in this category may also be experiencing significant management
problems, pending litigation, or other structural credit weaknesses.
Substandard. Borrowers have well-defined weaknesses that require extensive oversight by management. Borrowers in this
category may exhibit one or more of the following: inadequate debt service coverage, unprofitable operations, insufficient
liquidity, high leverage, and weak or inadequate capitalization. Relationships in this category are not adequately protected
by the sound financial worth and paying capacity of the obligor or the collateral pledged on the loan, if any. The distinct
possibility exists that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful. Borrowers have well-defined weaknesses inherent in the Substandard category with the added characteristic that
the possibility of loss is extremely high. Current circumstances in the credit relationship make collection or liquidation in
full highly questionable. A doubtful asset has some pending event that may strengthen the asset that defers the loss
classification. Such impending events include: perfecting liens on additional collateral, obtaining collateral valuations, an
acquisition or liquidation preceding, proposed merger, or refinancing plan.
74
Loss. Borrowers are uncollectible or of such negligible value that continuance as a bankable asset is not supportable. This
classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical to
defer writing off this asset even though partial recovery may be recognized sometime in the future.
Residential and Consumer Loans
The residential and consumer loan portfolios are monitored on an ongoing basis using delinquency information and
loan type as credit quality indicators. These credit quality indicators are assessed in the aggregate in these homogeneous
portfolios. Loans that are greater than 90 days past due are generally considered nonperforming and placed in nonaccrual
status.
The following tables provide an analysis of loans by portfolio segment based on the credit quality indicators used to
determine the Allowance at December 31:
Commercial Credit Exposure
(In Thousands)
Risk Rating:
Special mention
Substandard:
Accrual
Nonaccrual
Doubtful/ Nonaccrual
Total Special Mention and Substandard
Pass
Commercial
Owner Occupied
Commercial
Commercial
Mortgages
Construction
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
Amount Percent Amount Percent
Total Commercial
$ 12,566 $ 14,611 $
4,747 $ 27,398 $
2,092 $ 29,267 $
226 $
2,453 $
19,631
$
73,729
56,806
2,362
2,641
63,074
1,598
3,263
45,181
5,185
12
44,899
13,827
174
8,146
2,784
5,877
6,222
5,422
7,212
3,599
1,158
—
5,755
1,172
375
113,732
11,489
8,530
119,950
22,019
11,024
153,382
18,899
74,375
736,507 621,945 731,235 684,283 706,294 583,242 101,091 123,620 2,275,127
48,123
82,546
55,125
86,298
4,983
9,755
6% 226,722
94
2,013,090
10%
90
Total
$810,882 $704,491 $786,360 $770,581 $725,193 $631,365 $106,074 $133,375 $2,428,509
100% $2,239,812
100%
Consumer Credit Exposure
(In Thousands)
Nonperforming (1)
Performing
Total
Total Residential and Consumer
Residential
Consumer
2013
2012
2013
2012
2013
2012
Amount
Percent
Amount
Percent
$ 17,852
203,668
$ 18,483
225,144
$
5,411
296,823
$
6,329
282,672
$ 23,263
500,491
4% $ 24,812
96% 507,816
5%
95%
$221,520
$243,627
$302,234
$289,001
$523,754
100% $532,628
100%
(1)
Includes $11.5 million as of December 31, 2013 and $10.1 million as of December 31, 2012 of troubled debt restructured mortgages and home
equity installment loans that are performing in accordance with the loans modified terms and are accruing interest.
Troubled Debt Restructurings (TDR)
The balance of TDRs at December 31, 2013 and December 31, 2012 was $27.6 million and $22.0 million,
respectively. The balances at December 31, 2013 include approximately $15.3 million of TDRs in nonaccrual status and
$12.3 million of TDRs in accrual status compared to $11.9 million of TDRs in nonaccrual status and $10.1 million of
TDRs in accrual status at December 31, 2012. Approximately $4.1 million and $936,000 in related reserves have been
established for these loans at December 31, 2013 and December 31, 2012, respectively.
A modification is classified as a troubled debt restructuring (“TDR”) if both of the following exist: (1) the borrower
is experiencing financial difficulty and (2) the Bank has granted a concession to the borrower. Many aspects of the
borrower’s financial situation are assessed when determining whether they are experiencing financial difficulty.
Concessions may include the reduction of an interest rate at a rate lower than current market rate for a new loan with
similar risk, extension of the maturity date, reduction of accrued interest, or principal forgiveness. The assessments of
75
whether a borrower is experiencing (or is likely to experience) financial difficulty and whether a concession has been
granted is subjective in nature and management’s judgment is required when determining whether a modification is a
TDR.
During 2013, the terms of 32 loans were modified in TDRs, of which 9 were related to commercial loans that were
already placed on nonaccrual. Nonaccruing restructured loans remain in nonaccrual status until there has been a period of
sustained repayment performance, typically six months The remaining loans represented residential and consumer loans.
Our concessions on restructured loans consisted mainly of forbearance agreements, reduction in interest rates or
extensions of maturities. Principal balances are generally not forgiven when a loan is modified as a TDR.
The following table presents loans identified as TDRs during the twelve months ended December 31, 2013 and
December 31, 2012:
(In Thousands)
Commercial
Commercial mortgages
Construction
Residential
Consumer
Twelve
Months Ended
December 31,
2013
Twelve
Months Ended
December 31,
2012
$ 9,241
7,056
—
1,076
1,323
$18,696
$10,235
—
378
5,217
2,386
$18,216
The TDRs described above increased the allowance for loan losses by $82,000 through allocation of a related
reserve, and resulted in charge offs of $381,000 during the twelve months ending December 31, 2013, most of which had
been previously identified and reserved for in prior periods.
There was one residential TDRs in the amount of $130,000 which defaulted (defined as past due 90 days) during the
twelve months ended December 31, 2013 that was restructured within the last twelve months prior to December 31, 2012.
There were no commercial or consumer TDRs that defaulted within the same time period.
6. REVERSE MORTGAGE RELATED ASSETS
Reverse mortgage related assets include reverse mortgage loans, SASCO 2002-RM1’s Class “O” certificates and the
BBB-rated tranche of this reverse mortgage security.
Reverse mortgage loans are contracts in which a homeowner borrows against the equity in their home and receives
cash in one lump sum payment, a line of credit, fixed monthly payments for either a specific term or for as long as the
homeowner lives in the home, or a combination of these options. Since reverse mortgages are nonrecourse obligations, the
loan repayments are generally limited to the sale proceeds of the borrower’s residence and the mortgage balance consists
of cash advanced, interest compounded over the life of the loan and some may include a premium which represents a
portion of the shared appreciation in the home’s value, if any, or a percentage of the value of the residence.
In July 2011, we purchased 100% of SASCO 2002-RM1’s Class “O” certificates, representing equity ownership of
this reverse mortgage securitization trust, for $2.5 million. This securitization was created in 2002 through the purchase of
reverse mortgage loans owned by us, as well as an additional lender. As part of this securitization we retained the BBB
rated tranche of this securitization and held this instrument as a trading asset since that time. However, there has never
been an active market develop for this asset.
During the third quarter of 2013, we obtained the right to execute a clean-up call on the underlying collateral. This
event triggered us to consolidate the assets and liabilities of the securitization trust, SASCO 2002 RM-1, on our
Consolidated Statement of Condition in accordance with ASC 810, Consolidation. As a result, we consolidated $40.5
76
million of reverse mortgage loans, $5.8 million of cash, $885,000 of MBS and $26.3 million of bonds all at fair value as
of September 30, 2013. Related to this accounting, we recorded $3.8 million (pre-tax) in income related to our ownership
of the equity tranche of the reverse mortgage securitization. The benefit of this holding in previous years was recorded
partially as an adjustment to equity (AOCI), but was taken through earnings during the third quarter as we consolidated
the assets and liabilities of the securitization trust on our Consolidated Statement of Condition in accordance with GAAP.
On January 27, 2014, WSFS completed the legal call of the reverse mortgage trust bonds and the redemption of the
trust’s preferred shareholders. For additional information regarding this call, see Note 23 to the Consolidated Financial
Statements.
Our existing investment in reverse mortgages has been combined with the consolidated reverse mortgage loans for a
total of $37.3 million at December 31, 2013. The average age of the borrowers is 92 years old and there is currently
significant overcollateralization in the portfolio, as the realizable collateral value (the lower of collectable principal and
interest or appraised value of the home) of $63 million and the liquid assets of $6 million well exceed the $22.0 million in
outstanding bonds at December 31, 2013.
As of December 31, 2012, our reverse mortgage related assets included ($457,000)carrying value of reverse
mortgages, $12.6 million fair value of reverse mortgage trading assets and $7.1 million fair value of SASCO 2002-RM1
Class “O” certificates. For additional information on the valuation of the Class “O” and trading assets see Note 17 of the
Consolidated Financial Statements.
The carrying value of the reverse mortgages is calculated by a model that uses the income approach as described in
ASC 820-10-35-32. The model is a present value cash flow model, consistent with ASC 820-10-55-5 which describes the
components of a present value measurement. The model incorporates the projected cash flows of the loans (includes
payouts and collections) and then discounts these cash flows using the effective yield required on the life of the portfolio
to reduce the net investment to zero at the time the final reverse mortgage contract is liquidated. The inputs to the model
reflect our expectations of what other market participants would use in pricing this asset in a current transaction and
therefore is consistent with ASC 820 that requires an exit price methodology for determining fair value.
To determine the carrying value of these reverse mortgages as of December 31, 2013 we used a proprietary model
and actual cash flow information to estimate future cash flows. There are three main drivers of cash flows; 1) move-out
rates. 2) house price appreciation (HPA) forecasts and 3) internal rate of return.
1) Move-out rates — The projections incorporate actuarial estimates of contract termination using mortality tables
published by the Office of the Actuary of the United States Bureau of Census, adjusted for expected
prepayments and relocations.
2) House Price Appreciation — Consistent with other reverse mortgage analyses from various market sources, we
forecast a 2.5% increase in housing prices in the next year and a 1.75% increase in the following year and
thereafter. We believe this forecast continues to be appropriate given the nature of reverse mortgage collateral
and historical under-performance to the broad housing market.
3)
Internal Rate of Return — As of December 31, 2013 the internal rate of return (IRR) of 14.22% was the
effective yield required on the life of the portfolio to reduce the net investment to zero at the time the final
reverse mortgage contract is liquidated.
77
As of December 31, 2013, the Company’s actuarially estimated cash payments to reverse mortgagors were as
follows:
Year Ending
2014
2015
2016
2017
2018
Years 2019 – 2023
Years 2024 – 2028
Years 2029 – 2033
Thereafter
Total
$1,004,565
820,257
663,038
530,411
419,873
1,038,376
242,803
42,848
5,181
$4,767,352
This table does not take into consideration cash receipts from maturity events of these reverse mortgages.
The amount of the contract value that would be forfeited if the Company were not to make cash payments to reverse
mortgagors in the future is $8.4 million.
The future cash flows depend on the HPA assumptions. If the future changes in collateral value were assumed to be
zero, income would decrease by $155,000 for the year ended December 31, 2013 with an IRR of 12.50%. If the future
changes in collateral value were assumed to be reduced by 1%, income would decrease by $77,000 with an IRR of
13.35%.
The net present value of the projected cash flow depends on the IRR used. If the IRR increased by 1%, the net
present value would increase by $103,000. If the IRR decreased by 1%, the net present value would decrease by $101,000.
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
2013
2012
$ 1,362
4,030
35,506
38,135
$ 1,362
4,020
35,011
35,912
79,033
76,305
43,855
38,048
$35,178
$38,257
Depreciation expense is computed on a straight-line basis over the estimated useful life of the asset. Leasehold
improvements are amortized over the term of the lease or the estimated useful life, whichever, is shorter. In general,
computer equipment, furniture and equipment and building renovations are expensed over three, five and ten years,
respectively.
We occupy certain premises including some with renewal options and operate certain equipment under
noncancelable leases with terms ranging primarily from 1 to 25 years. These leases are accounted for as operating leases.
78
Accordingly, lease costs are expensed as incurred in accordance with FASB ASC 840-20 Operating Leases. Rent expense
was $9.1 million in 2013, $9.0 million in 2012 and $7.9 million in 2011. Future minimum cash payments under these
leases at December 31, 2013 are as follows:
(In Thousands)
2014
2015
2016
2017
2018
Thereafter
Total future minimum lease payments
$
7,924
7,712
7,483
7,430
7,590
144,635
$182,774
8. GOODWILL AND 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 we made
good-faith estimates primarily through the use of internal cash flow modeling techniques. The assumptions used in the
cash flow modeling are subjective and susceptible to significant changes.
Goodwill and other intangible assets with indefinite useful lives are tested for impairment at least annually and
charged to results of operations 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. Goodwill totaled $32.2 million at December 31, 2013 and $28.1 million at December 31, 2012. The majority
of this goodwill, or $27.1 million, is in the WSFS Bank reporting unit and is the result of a branch acquisition in 2008, the
acquisition of Christiana Bank and Trust (“CB&T”) during 2010 and the purchase of Array and Arrow during 2013. The
remaining $5.1 million is in the Trust and Wealth Management reporting unit and is mainly the result of the acquisition of
CB&T.
During 2011, ASU 2011-08, Intangibles — Goodwill and Other (Topic 350), was issued. Under the Update, an entity
is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that
its fair value is less than its carrying amount. Therefore, before the first step of the existing guidance, the entity has the
option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a
determination that the fair value of goodwill is less than carrying value. The qualitative assessment includes adverse
events or circumstances identified that could negatively affect the reporting units’ fair value as well as positive and
mitigating events. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than
not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step process is
unnecessary. The entity has the option to bypass the qualitative assessment step for any reporting unit in any period and
proceed directly to the first step of the existing two-step process. The entity can resume performing the qualitative
assessment in any subsequent period.
When required, the goodwill impairment test involves a two-step process. The first test is done by comparing the
reporting unit’s aggregate fair value to its carrying value. Absent other indicators of impairment, if the aggregate fair
value exceeds the carrying value, goodwill is not considered impaired and no additional analysis is necessary. If the
carrying value of the reporting unit were to exceed the aggregate fair value, a second test would be performed to measure
79
the amount of impairment loss, if any. To measure any impairment loss, the implied fair value would be determined in the
same manner as if the reporting unit were being acquired in a business combination. If the implied fair value of goodwill
is less than the recorded goodwill, an impairment charge would be recorded for the difference.
Fair value may be determined using market prices, comparison to similar assets, market multiples, discounted cash
flow analyses and other variables. Estimated cash flows extend five years into the future and, by their nature, are difficult
to estimate over such an extended period of time. Factors that may significantly affect 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, 2013, we assessed qualitative factors including macroeconomic conditions, industry and market
conditions, cost factors, and overall financial performance in 2013 and determined that it was not more likely than not that
the fair value of any of our reporting units was less than their respective carrying amounts. Therefore we did not perform
the two-step impairment test for any of our reporting units in 2013. No impairment losses related to our goodwill were
recorded in 2013, however there can be no assurance that impairments of our goodwill will not occur in future periods.
For our goodwill impairment analysis, we allocate all of the goodwill to the individual operating segments. We
identify reporting units that are one level below an operating segment (referred to as a component), and distinguish these
reporting units based on how the segments and components are managed, taking into consideration the economic
characteristics, nature of the products and customers of the components. At the time we acquire a business, we allocate
to applicable reporting units based on their relative fair value, and if we have a significant business
goodwill
reorganization, we may reallocate the goodwill. For additional information on management reporting, see Note 19 to the
Consolidated Financial Statements and Note 2 for additional information on the Goodwill that was recorded during 2013.
The following table shows the allocation of goodwill to our reportable operating segments for purposes of goodwill
impairment testing.
(In Thousands)
December 31, 2011
Changes in goodwill
December 31, 2012
Goodwill from business combinations
December 31, 2013
December 31, 2013
Core deposits
Other
Total other intangible assets
December 31, 2012
Core deposits
Other
Total other intangible assets
WSFS
Bank
Cash
Connect
Trust &
Wealth
Management
Consolidated
Company
$23,012
—
23,012
4,089
$—
—
—
—
$27,101
$—
$5,134
—
5,134
—
$5,134
$28,146
—
28,146
4,089
$32,235
Gross
Intangible
Assets
$ 4,370
6,625
$10,995
$ 4,370
4,464
$ 8,834
Accumulated
Amortization
(In Thousands)
Net
Intangible
Assets
$(2,605)
(1,647)
$(4,252)
$(2,020)
(1,640)
$(3,660)
$1,765
4,978
$6,743
$2,350
2,824
$5,174
Core deposits are amortized over their expected lives using the present value of the benefit of the core deposits and
straight-line methods of amortization. We recognized amortization expense on other intangible assets of $1.0 million,
$989,000, and $1.2 million for the years ended December 31, 2013, 2012, and 2011.
80
The following presents the estimated amortization expense of intangibles:
(In Thousands)
2014
2015
2016
2017
2018
Thereafter
Total
Amortization
of Intangibles
$1,167
1,135
878
731
711
2,121
$6,743
At December 31, 2013, goodwill and other intangible assets were not considered impaired. Changing economic
conditions that may adversely affect our performance and stock price could result in impairment, which could adversely
affect earnings in the future.
9. DEPOSITS
The following is a summary of deposits by category, including a summary of the remaining time to maturity for time
deposits:
December 31,
(In Thousands)
Money market and demand:
Noninterest-bearing demand
Interest-bearing demand
Money market
Total money market and demand
Savings
Customer certificates of deposit by maturity:
Less than one year
One year to two years
Two years to three years
Three years to four years
Over four years
Total customer time certificates
Jumbo certificates of deposit, 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
Total customer deposits
Brokered deposits less than one year
Total deposits
81
2013
2012
$ 650,256
638,403
887,715
$ 631,026
538,195
933,901
2,176,374
2,103,122
383,731
389,977
134,356
89,750
7,951
1,446
3,462
236,965
162,617
51,996
3,092
535
2,905
221,145
202,604
45,955
60,879
5,894
1,654
316,986
234,716
20,581
36,561
2,031
348
294,237
3,018,215
3,104,322
168,727
170,641
$3,186,942
$3,274,963
Interest expense by category follows:
Year Ended December 31,
(In Thousands)
Interest-bearing demand
Money market
Savings
Time deposits
Total customer interest expense
Brokered deposits
Total interest expense on deposits
2013
2012
2011
$ 529
1,123
217
4,712
$
246
1,759
431
9,531
6,581
11,967
$
405
2,897
1,465
13,548
18,315
599
1,134
816
$7,180
$13,101
$19,131
10. BORROWED FUNDS
The following is a summary of borrowed funds by type:
At or for the twelve months ended:
December 31, 2013
FHLB advances
Federal funds purchased and securities sold under
agreements to repurchase
Trust preferred borrowings
Senior Debt
Reverse mortgage trust bonds payable
Other borrowed funds
December 31, 2012
FHLB advances
Federal funds purchased and securities sold under agreements to
repurchase
Trust preferred borrowings
Senior Debt
Other borrowed funds
Federal Home Loan Bank Advances
Weighted
Average
Interest
Rate
Maximum
Outstanding
at Month
End During
the Period
Average
Amount
Outstanding
During the
Year
Balance at
End of
Period
Weighted
Average
Interest
Rate
During the
Year
$638,091
0.30% $685,591
$573,989
0.32%
(Dollars in Thousands)
97,000
67,011
55,000
21,990
24,739
0.98
2.01
6.25
0.34
0.09
126,000
67,011
55,000
26,340
41,976
108,105
67,011
55,000
6,757
35,026
0.91
1.98
6.86
0.88
0.32
$376,310
0.57% $588,052
$466,243
1.32%
110,000
67,011
55,000
28,945
0.90
2.08
6.25
0.09
125,000
67,011
55,000
64,599
101,106
67,011
19,085
33,924
0.99
2.17
6.68
0.41
Advances from the FHLB of Pittsburgh with rates ranging from 0.16% to 1.52% at December 31, 2013 are due as
follows:
2014
2015
Weighted
Average
Rate
Amount
(Dollars in Thousands)
$615,925
22,166
0.29%
0.58
$638,091
0.30
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.
82
As a member of the FHLB of Pittsburgh, we are required to purchase and hold shares of capital stock in the FHLB of
Pittsburgh in an amount at least equal to 0.35% of our member asset value plus 4.60% of advances outstanding. We were
in compliance with this requirement with a stock investment in FHLB of Pittsburgh of $35.9 million at December 31,
2013 and $31.2 million as of December 31, 2012. This stock is carried on the accompanying Consolidated Statement of
Condition at cost, which approximates liquidation value.
The increase in FHLB stock was due to an increase in FHLB Advances outstanding. We received no dividends from
the FHLB of Pittsburgh during 2011. However, in February of 2012, the FHLB of Pittsburgh declared and began to pay a
dividend on capital stock. We received dividends of $391,000 and $60,000 for the years ended December 31, 2013 and
2012, respectively. For additional information regarding FHLB Stock, see Note 17 to the Consolidated Financial
Statements.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
During 2013 and 2012, we purchased federal funds as a short-term funding source. At December 31, 2013, we had
purchased $72.0 million in federal funds at an average rate of 0.28%. At December 31, 2012, we had purchased $85.0
million in federal funds at a rate of 0.27%.
During 2013, we continued to have securities sold under agreements to repurchase as a funding source. At
December 31, 2013, securities sold under agreements to repurchase had a fixed rate of 2.98%. These repurchases mature
on January 1, 2015. The underlying securities are mortgage-backed securities with a fair value of $33.6 million at
December 31, 2013. Securities sold under agreements to repurchase with the corresponding carrying and market values of
the underlying securities are due as follows:
(Dollars in Thousands)
2013
Over 90 days
2012
Over 90 days
Trust Preferred Borrowings
Borrowing
Amount
Rate
Carrying
Value
Collateral
Fair
Value
Accrued
Interest
$25,000
2.98% $34,952
$33,596
$ 83
$25,000
2.98% $41,061
$41,714
$104
In 2005, we issued $67.0 million of aggregate principal amount of Pooled Floating Rate Securities at a variable
interest rate of 177 basis points over the three-month LIBOR rate.
Senior Debt
In 2012, we issued and sold $55.0 million in aggregate principal amount of 6.25% Senior Notes due 2019 (the
“Senior Debt”). The Senior Debt is unsecured and ranks equally with all of our other present and future unsecured
unsubordinated obligations. The senior debt is effectively subordinated to our secured indebtedness and structurally
subordinated to the indebtedness of our subsidiaries. At our option, the Senior Debt is callable, in whole or in part, after
five years. The Senior Debt matures on September 1, 2019.
Reverse Mortgage Trust Bonds Payable
In conjunction with consolidating reverse mortgage loans through consolidation of a reverse mortgage securitization,
we also have recognized the securitization bonds on our Consolidated Statement of Condition. The bonds have a carrying
value of $22.0 million and carry an interest rate of 0.88%. We completed the legal call of the bonds on January 27, 2014.
See Note 6 to the Consolidated Financial Statements.
83
Other Borrowed Funds
Included in other borrowed funds are collateralized borrowings of $24.7 million and $28.9 million at December 31,
2013 and 2012, respectively, consisting of outstanding retail repurchase agreements, contractual arrangements under
which portions of certain securities are sold overnight
to retail customers under agreements to repurchase. Such
borrowings were collateralized by mortgage-backed securities. The average rates on these borrowings were 0.09% at both
December 31, 2013 and 2012.
11. STOCK AND COMMON STOCK WARRANTS
In 2010, we completed an underwritten public offering of 1,370,000 shares of common stock and raised $47.1
million net of $2.9 million of costs.
In 2009 we completed a private placement of stock to Peninsula Investment Partners, L.P. (Peninsula), pursuant to
which we 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 common stock at an exercise price of $29.00 per share. The warrant is immediately
exercisable. Total proceeds of $25.0 million were allocated, 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.
In 2009, we entered into a purchase agreement with the U.S. Treasury (“Treasury”) pursuant to which we issued and
sold 52,625 shares of our 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 common stock at an exercise price of $45.08 per share. During 2013 we
declared and paid $1.8 million of cash dividends on the preferred stock. In 2012 and 2011 we declared and paid $2.6
million of cash dividends. On September 12, 2012 we entered into a letter agreement with the Treasury pursuant to which
the Company repurchased the warrant for $1.8 million.
During 2013, we received regulatory non-objection to repurchase/redeem our cumulative perpetual preferred stock
using available cash on hand. Late in the second quarter of 2013, we repurchased $20.0 million of the $52.6 million
outstanding in open market transactions (at or very near par value), and redeemed the remaining preferred stock at the
stated liquidation (par) value of $1,000 per share in the 3rd quarter.
12. STOCKHOLDERS’ EQUITY
Under guidelines issued by banking regulators, savings institutions such as the Bank 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 actions and
possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our bank’s
financial statements. At December 31, 2013 and 2012, the Bank was in compliance with regulatory capital requirements
and was deemed a “well-capitalized” institution.
The following table presents the capital position of the Bank as of December 31, 2013 and 2012:
(In Thousands)
As of December 31, 2013
Total Capital (to risk-weighted assets)
Core Capital (to adjusted tangible assets)
Tangible Capital (to tangible assets)
Tier 1 Capital (to risk-weighted assets)
As of December 31, 2012
Total Capital (to risk-weighted assets)
Core Capital (to adjusted tangible assets)
Tangible Capital (to tangible assets)
Tier 1 Capital (to risk-weighted assets)
Consolidated Bank
Capital
For Capital Adequacy
Purposes
To Be Well-Capitalized
Under Prompt Corrective
Action Provisions
Amount
Percent
Amount
Percent
Amount
Percent
14.36% $281,450
178,996
10.35
67,124
10.35
140,725
13.16
8.00% $351,812
223,745
4.00
N/A
1.50
211,087
4.00
14.29% $261,440
173,273
9.83
64,977
9.83
130,720
13.04
8.00% $326,800
216,592
4.00
N/A
1.50
196,080
4.00
10.00%
5.00
N/A
6.00
10.00%
5.00
N/A
6.00
$505,354
463,130
463,130
463,130
$466,924
426,019
426,019
426,019
84
The Holding Company
As of December 31, 2013, our capital structure includes one class of stock, $0.01 par common stock outstanding with
each share having equal voting rights. During 2013, our preferred stock was fully redeemed at par.
In 2005, WSFS Capital Trust III, our unconsolidated subsidiary, issued Pooled Floating Rate Securities at a variable
interest rate of 177 basis points over the three-month LIBOR rate with a scheduled maturity of June 1, 2035. The par
value of these securities is $2.0 million and the aggregate principal is $67.0 million. The proceeds from the issue were
invested in Junior Subordinated Debentures we issued. These securities are treated as borrowings with interest included in
interest expense on the Consolidated Statement of Operations. At December 31, 2013, the coupon rate of the WSFS
Capital Trust III securities was 2.01%. The effective rate will vary due to fluctuations in interest rates.
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 Prompt Corrective Action regulations.
At December 31, 2013, $19.3 million in cash remains at the holding company to support the parent company’s needs.
Pursuant to federal laws and regulations, our ability to engage in transactions with affiliated corporations is limited,
and we generally may not lend funds to nor guarantee our indebtedness.
13. 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 related earnings are tax deferred until
withdrawn. We match a portion of the Associates’ contributions. As a result, our total cash contributions to the plan on
behalf of our Associates resulted in an expense of $2.6 million, $2.4 million, and $1.9 million for 2013, 2012, and 2011,
respectively.
All contributions are invested in accordance with the Associates’ selection of investments. If Associates do not
designate how discretionary contributions are to be invested, 100% will be invested in a balanced fund. Associates may
generally make transfers to various other investment vehicles within the plan. The plan’s yearly activity includes net sales
for the WSFS fund of 19,000 for 2013 and net purchases of 2,000, and 24,000 shares of our common stock during 2012
and 2011, 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”). 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
to accumulated other comprehensive income, net of tax. The
financial position, with a corresponding adjustment
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
85
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 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 2014 we expect to recognize $56,000 in expense relating to the amortization of
the net actuarial loss, and none relating to the net transition obligation.
The following disclosures relating to postretirement benefits were measured at December 31:
(Dollars in Thousands)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
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
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
86
2013
2012
2011
$ 4,478
343
176
(288)
(149)
$ 3,923
288
174
271
(178)
$ 3,088
207
166
623
(161)
$ 4,560
$ 4,478
$ 3,923
$ —
149
(149)
$ —
178
(178)
$ —
161
(161)
$ —
$ —
$ —
$(4,560)
1,221
$(4,478)
1,587
$(3,923)
1,444
$(3,339)
$(2,891)
$(2,479)
$
$
343
177
—
78
598
$
$
288
174
61
67
590
4.00% 4.50%
5.00% 5.00%
$ —
—
—
—
$
(34)
12
(146)
142
$
$
$
207
166
61
32
466
5.50%
5.00%
(17)
13
(129)
100
5.00% 4.00%
5.00% 5.00%
5.00% 5.00%
2013
2012
4.50%
5.00%
5.00%
2011
Estimated future benefit payments:
The following table shows the expected future payments for the next ten years:
(In Thousands)
During 2014
During 2015
During 2016
During 2017
During 2018
During 2019 through 2023
$ 125
128
132
146
155
1,078
$1,764
We assume the average annual rate of increase for medical benefits will 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 us. For 2013, this annual premium cap amounted to $2,920 per retiree. We estimate that we will contribute
approximately $3,037 per retiree to the plan during fiscal 2014.
We have five additional plans which are no longer being provided to Associates. They are a Supplemental Pension
Plan with a corresponding liability of $381,000, an Early Retirement Window Plan with a corresponding liability of
$149,000, a Director’s Plan with a corresponding liability of $44,000, a Supplemental Executive Retirement Plan with a
corresponding liability of $932,000, and a Post-Retirement Medical Plan with a corresponding liability of $164,000.
14. TAXES ON INCOME
We and our subsidiaries file a consolidated federal income tax return and separate state income tax returns. Our
income tax provision consists of the following:
Year Ended December 31,
(In Thousands)
Current income taxes:
Federal taxes
State and local taxes
Deferred income taxes:
Federal taxes
State and local taxes
Total
2013
2012
2011
$21,242
2,759
$11,136
2,256
$ 6,648
1,849
875
(120)
3,591
—
2,978
—
$24,756
$16,983
$11,475
Current federal income taxes include taxes on income that cannot be offset by net operating loss carryforwards.
87
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, 2013 and 2012:
(In Thousands)
Deferred tax assets:
Unrealized losses on available-for-sale securities
Allowance for loan losses
Reserves and other
Deferred gains
Net operating losses
Reverse mortgages
Total deferred tax assets before valuation allowance
Less: valuation allowance
Total Deferred tax assets
Deferred tax liabilities:
Unrealized gains on available-for-sale securities
Accelerated depreciation
Other
Prepaid expenses
Deferred loan costs
Intangibles
Total deferred tax liabilities before valuation allowance
Net deferred tax asset
2013
2012
12,762
14,436
8,854
453
1,196
3,686
41,387
(4,882)
36,505
—
15,373
7,511
480
—
—
23,364
—
23,364
$ —
(1,506)
(2,132)
(1,112)
(1,843)
(1,765)
(8,358)
$ (8,053)
(2,115)
(397)
(1,590)
(1,866)
(1,256)
(15,277)
$28,147
$ 8,087
Included in the table above is the effect of certain temporary differences for which no deferred tax expense or benefit
was recognized. In 2013, such items consisted primarily of $12.8 million of unrealized losses on certain investments in
debt and equity securities accounted for under ASC 320 along with $550,000 related to postretirement benefit obligations
accounted for under ASC 715. In 2012, they consisted primarily of $8.1 million of unrealized gains on certain investments
in debt and equity securities, partially offset by $550,000 related to postretirement benefit obligations.
Based on our history of prior earnings and our expectations of the future, it is anticipated that operating income and
the reversal pattern of our temporary differences will, more likely than not, be sufficient to realize a net deferred tax asset
of $28.1 million at December 31, 2013.
A reconciliation showing 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
Tax-exempt interest
Bank-owned life insurance income
Incentive stock option and other nondeductible compensation
Settlement of prior year charitable donation
Federal tax credits
Other
Effective tax rate
88
2013
2012
2011
35.0% 35.0% 35.0%
2.4
3.0
—
(0.5)
(1.2)
(0.5)
(0.1)
(1.1)
0.3
0.6
—
—
(1.7)
(1.4)
(0.1)
0.1
3.4
(2.1)
(0.4)
(2.0)
0.9
(1.2)
(0.5)
0.5
34.6% 35.2% 33.6%
We account for income taxes in accordance with 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.
As a result of the consolidation for accounting purposes of the SASCO reverse mortgage securitization trust during
2013, a deferred tax asset (“DTA”) of approximately $4.9 million was recorded. However, because SASCO is not
consolidated for income tax purposes since it is subject to taxation on a separate entity basis as a real estate investment
trust (“REIT”) as of and for the year ended December 31, 2013, a full valuation allowance was also recorded on this DTA
due to the uncertainty of its realization. Realization of the DTA is dependent on future taxable income which is not
assured as of December 31, 2013 with SASCO as a separate entity. On January 27, 2014 SASCO’s REIT tax structure was
eliminated, which will permit tax consolidation within the Bank’s tax return filings on a prospective basis. At this date,
the uncertainty surrounding the realization of the DTA was eliminated since the Bank’s Consolidated group is projected to
have sufficient taxable income. Accordingly, we expect to remove the $4.9 million valuation allowance along with
elimination of a $1.7 million deferred tax liability associated with our original investment in SASCO, which will result in
an overall income tax benefit of $6.6 million in 2014. Finally, SASCO has $3.4 million of Federal net operating losses
(“NOL’s”) that the Bank will acquire upon SASCO’s liquidation. Such NOL’s expire beginning in 2030.
Related to the move of our corporate headquarters, during 2007, we donated (to the local Historical Society, for the
purpose of community viewing) 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 represented an income tax uncertainty
because it was subject to evaluation by the Internal Revenue Service (“IRS”). The IRS did not audit our 2007 income tax
return and the statute of limitations on this tax year expired in 2011. Accordingly, we recorded a $416,000 tax benefit in
2011 related to the resolution of this uncertainty.
We record interest and penalties on potential income tax deficiencies as income tax expense. Federal tax years 2010
through 2013 remain subject to examination as of December 31, 2013, while tax years 2010 through 2013 remain subject
to examination by state taxing jurisdictions. During 2013, the audit of our 2010 federal tax return was completed by the
IRS. We recorded a $186,000 tax benefit as a result of settling this audit. No state income tax return examinations are
currently in process. We do not expect to record or realize any material unrecognized tax benefits during 2014.
89
ASC 740 prescribes a minimum probability threshold that a tax position must meet before a financial statement
benefit is recognized. We recognize, when applicable, interest and penalties related to unrecognized tax benefits in the
provision for income taxes in the financial statements. Assessment of uncertain tax positions under ASC 740 requires
careful consideration of the technical merits of a position based on our analysis of tax regulations and interpretations.
There are no longer any unrecognized tax benefits related to ASC 740 as of December 31, 2013. A reconciliation of the
total amounts of unrecognized tax benefits during 2013 and 2012 is as follows:
(In Thousands)
Unrecognized tax benefits at January 1
Tax positions taken during prior years
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
2013
2012
$—
—
—
—
—
$—
$ 88
(3)
—
(85)
—
$—
15. STOCK-BASED COMPENSATION
Stock-based compensation is accounted for in accordance with FASB ASC 718, Stock Compensation. After
shareholder approval in 2005, the 1997 Stock Option Plan (“1997 Plan”) was replaced by the 2005 Incentive Plan (“2005
Plan”). Upon stockholder approval in 2013, the 2005 Incentive Plan was amended and replaced by the 2013 Incentive
Plan (“2013 Plan”). No future awards may be granted under the 2005 Plan, however, we still have options outstanding
under the 1997 Plan and 2005 Plan for our officers, directors and employees of us and our subsidiaries (“Associates”).
The 2013 Plan will terminate on the tenth anniversary of its effective date, after which no awards may be granted.
Collectively, the 1997 Plan, 2005 Plan and 2013 Plan are referred to as Stock Incentive Plans. The number of shares
reserved for issuance under the 2013 Plan is 698,845. At December 31, 2013, there were 548,845 shares available for
future grants under the 2013 Plan.
With the exception of certain Performance Stock Awards, 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 non-incentive stock options
(collectively, “Stock Options”). Additionally, the 2013 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. With the exception of certain Non-Plan Stock Options (as defined below), all Stock Options
granted during 2013 and 2012 vest in 25% per annum increments, start to become exercisable one year from the grant date
and expire five years from the grant date. Generally, all awards become exercisable immediately in the event of a change
in control, as defined within the Stock Incentive Plans. In addition, the Black-Scholes option-pricing model is used to
determine the grant date fair value of Stock Options.
90
Stock Options
A summary of the status of our Stock Incentive Plans as of December 31, 2013, 2012 and 2011, respectively, and
changes during those years are presented below:
Stock Options:
Outstanding at beginning of year
Granted
Exercised
Forfeited
Expired
Outstanding at end of year
Exercisable at end of year
2013
2012
2011
Weighted-
Average
Exercise
Price
Weighted-
Average
Exercise
Price
Shares
Weighted-
Average
Exercise
Price
Shares
Shares
335,730
522,357
(118,438)
(13,081)
(13,990)
$42.14
49.09
39.39
47.50
49.08
416,886
88,307
(71,055)
—
(98,408)
$43.52
39.66
30.78
—
53.99
566,323
57,723
(85,379)
(12,666)
(109,115)
$42.84
44.15
18.94
40.85
59.85
712,578
47.42
335,730
42.14
416,886
43.52
103,549
$46.02
178,432
$45.28
304,628
$46.27
Weighted-average fair value of awards granted
$
13.94
$
12.50
$
14.06
At January 1, 2013 there were nonvested options with a $6.1 million intrinsic value. Stock Options that vested during
2013 had an intrinsic value of $2.4 million and options that were exercised had an intrinsic value of $2.7 million. In
addition,
there were vested options that expired with no intrinsic value. The exercisable options remaining at
December 31, 2013, had an intrinsic value of $3.3 million and an average remaining contractual term of 1.4 years. At
December 31, 2013 outstanding options had an intrinsic value of $21.4 million and an average remaining contractual term
of 4.7 years.
The following table provides information about our unvested stock options outstanding at December 31, 2013, 2012
and 2011, respectively:
2013
2012
Weighted-
Average
Exercise
Price
Weighted-
Average
Grant Date
Fair Value
Weighted-
Average
Exercise
Price
Weighted-
Average
Grant Date
Fair Value
Shares
Shares
Shares
Shares
2011
Weighted-
Average
Exercise
Price
Weighted-
Average
Grant Date
Fair Value
Stock Options:
Unvested at beginning of period
Granted
Vested
Forfeited
157,298
522,357
(57,545)
(13,081)
$38.57
49.09
35.41
47.50
$11.98
13.94
10.65
9.58
112,258 $36.08
39.66
88,307
(43,267)
34.32
—
$10.69
12.50
9.66
123,486 $34.94
44.15
57,723
40.77
(56,285)
40.85
(12,666)
$ 8.27
14.06
9.13
9.44
Unvested at end of period
609,029
$47.66
$13.75
157,298 $38.57
$11.98
112,258 $36.08
$10.69
The total amount of unrecognized compensation cost related to nonvested stock options as of December 31, 2013
was $6.0 million. The weighted-average period over which the expense is expected to be recognized is 3.8 years. We issue
new shares upon the exercise of options.
On April 25, 2013 stockholders approved a change in future compensation for Mark A. Turner, President and CEO.
As a result, Mr. Turner was granted 250,000 non-statutory stock options (“Non-Plan Stock Options’) with a longer and
slower vesting schedule than our standard options, 40% vesting after the second year and 20% vesting in each of the
following three years. Additionally, these options were awarded at an exercise price of 20% over the December 2012
market value (date in which framework of the plan was decided on). Upon the grant, Mr. Turner is no longer eligible to
receive grants under any of our other stock based award programs for a period of five years. The Black-Scholes option-
pricing model was used to determine the grant date fair value of options. Significant assumptions used in the model
included a weighted-average risk-free rate of return (zero coupon treasury yield) of 0.76% in 2013; an expected option life
of five years; and an expected stock price volatility of 40.5% in 2013. For the purposes of this option-pricing model, a
dividend yield of 1.01% was assumed.
91
Additionally, as a result of the stockholder approval, 150,000 incentive stock options were issued to certain executive
officers of the Company under the 2013 Plan. These options have the same vesting schedule and exercise price as the
Non-Plan Stock Options granted to Mr. Turner. The Black-Scholes option-pricing model was used to determine the grant
date fair value of options. Significant assumptions used in the model included a weighted-average risk-free rate of return
(zero coupon treasury yield) of 0.76% in 2013; an expected option life of five years; and an expected stock price volatility
of 40.5% in 2013. For the purposes of this option-pricing model, a dividend yield of 1.01% was assumed.
During 2013, we granted 122,357 additional 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 options. Significant assumptions used in
the model included a weighted-average risk-free rate of return (zero coupon treasury yield) of 0.50% in 2013; an expected
option life of three years and nine months; and an expected stock price volatility of 30.7% in 2013. For the purposes of
this option-pricing model, a dividend yield of 1.01% was assumed.
During 2012, we granted 88,307 additional 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 options. Significant assumptions used in
the model included a weighted-average risk-free rate of return (zero coupon treasury yield) between 0.6% and 0.7% in
2012; an expected option life of three years and nine months; and an expected stock price volatility of 44.6% in 2012. For
the purposes of this option-pricing model, a dividend yield of 1.2% was assumed.
The following table summarizes all outstanding Stock Options for option plans as of December 31, 2013, segmented
by range of exercise prices:
Stock Options:
$20.70-$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
Total
Outstanding
Exercisable
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual Life
$23.36
31.33
39.68
46.76
49.54
58.85
62.50
0.2
1.6
3.2
3.6
6.1
1.0
2.3
Weighted
Average
Exercise
Price
$23.36
31.30
39.76
45.02
51.17
58.85
62.50
Number
13,818
8,879
15,090
20,040
4,360
40,057
1,305
Number
13,818
16,552
81,421
155,065
404,360
40,057
1,305
712,578
$47.42
103,549
$46.02
Restricted Stock and Restricted Stock Units
During 2013, we issued 11,357 restricted stock units (“RSUs”) and restricted stock awards. These awards vest over a
four year period. These stock awards were made to certain executive officers. The total amount of compensation cost to be
recognized relating to non-vested restricted stock as of December 31, 2013, was $1.2 million. This compares to $992,000
at December 31, 2012 and $1.2 million at December 31, 2011. The weighted-average period over which the cost is
expected to be recognized is 1.7 years.
Compensation costs related to these issuances are recognized over the lives of the restricted stock and RSUs. We
amortize the expense related to the restricted stock grants into salaries, benefits and other compensation expense on an
accrual 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.
92
Performance Stock Awards
The Long-Term Performance-Based Restricted Stock Unit program (“Long-Term Program”) provided for awards up
to an aggregate of 77,800 shares of our stock to the remaining 14 participants, only after the achievement of targeted
levels of return on assets (“ROA”) in any year through 2013. Under the terms of the plan, if an annual ROA performance
level of 1.00% was achieved, up to 39,000 shares were to be awarded. If an annual ROA performance level of 1.125%
was achieved, up to 53,300 shares were to be awarded. If an annual ROA performance level of 1.25% or greater was
achieved, up to 77,800 shares were to be awarded. Additionally, if a performance level was achieved and there were
insufficient shares available for grant, we had the option of granting the available shares with the remainder paid in cash.
During 2013, the company achieved the 1.00% performance level of return on assets. In accordance with the Long-Term
Program, we issued 36,152 RSUs to the plan’s participants. The awarded stock will vest in 25% increments over four
years. During 2013 we recognized $88,000 of compensation expense related to this program. Compensation expense
related to the Long-Term Program was based on the closing stock price as of May 28, 2008.
The Board approved a plan in which Marvin N. Schoenhals, Chairman of the Board, was granted 22,250 shares of
restricted stock effective January 3, 2011 with a five-year performance vesting schedule starting at the end of the second
year. These shares are subject to vesting in whole or in part based on the role that Mr. Schoenhals plays in establishing
new business over a two year period of time that achieves over a two year period a result of at least a 50% return on
investment of the cost of the restricted stock. We recognized compensation expense of $275,000 related to this award in
2013.
The impact of stock-based compensation for the year ended December 31, 2013 was $3.2 million pre-tax ($2.5
million after tax) to salaries, benefits and other compensation. This compares to $2.3 million pre-tax ($1.7 million after
tax) in 2012, and $1.6 million pre-tax ($1.2 million after tax) in 2011.
16. COMMITMENTS AND CONTINGENCIES
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:
Year
2014
2015
2016
2017
2018
Amount
$3,437
1,598
763
727
—
The expenses for data processing and operations for the year ending December 31, 2013 was $5.9 million, compared
to $5.6 million for the year ended December 31, 2012 and $5.3 million for the year ended December 31, 2011.
Legal Proceedings
In the ordinary course of business, we are subject to legal actions that involve claims for monetary relief. For
additional information regarding legal proceedings, see Note 22 to the Consolidated Financial Statements.
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.
93
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 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,
2013
2012
(In Thousands)
Financial instruments with contract amounts which represent
potential credit risk:
Construction loan commitments
Commercial mortgage loan commitments
Commercial loan commitments
Commercial owner-occupied commitments
Commercial standby letters of credit
Residential mortgage loan commitments
Consumer loan commitments
$ 64,210
9,852
335,257
32,078
56,651
5,018
150,265
$ 44,610
13,523
317,750
46,211
55,540
22,657
135,060
At December 31, 2013, we had total commitments to extend credit of $653.3 million. The consumer lines of credit of
$150.3 million reflected in the table include $142.4 million secured by real estate. Residential mortgage loan
commitments generally have closing dates within a one-month period but can be extended to six months in some cases.
Not reflected in the table above are commitments to sell residential mortgages of $24.2 million and $55.2 million at
December 31, 2013 and 2012, respectively.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire without being completely drawn upon,
the total commitment amounts do not necessarily represent future cash requirements. Standby letters of credit are
conditional commitments issued to guarantee the performance of a customer to a third party. We evaluate each customer’s
creditworthiness and obtain collateral based on our credit evaluation of the counterparty.
Indemnifications
Secondary Market Loan Sales. Given the current interest rate environment and current customer preference for
long-term fixed rate mortgages, coupled with our desire not to hold these assets in our portfolio, we generally sell newly
originated fixed rate conventional, 15 to 30 year loans in the secondary market to GSEs such as FHLMC or to wholesale
lenders. Loans held-for-sale are carried at the lower cost or market value of the aggregate, or in some cases, individual
loans. Gains and losses on sales of loans are recognized at the time of the sale. We sometimes retain the servicing rights
on residential mortgage loans sold which results in monthly service fee income. Otherwise, we sell loans with servicing
released on a nonrecourse basis. Rate-locked loan commitments we intend to sell in the secondary market are accounted
for as derivatives under the guidance promulgated in FASB ASC Topic 815, Derivatives and Hedging.
We generally do not sell loans with recourse, except for 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 our repurchase of the loans. Repurchases and losses have been rare and no provision is made for losses at the
time of sale. There were no such repurchases for the years ended December 31, 2013 and 2012.
Swap Guarantees. We entered into agreements with three unrelated 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
94
third-party financial institution. This is a customary arrangement that allows smaller financial institutions like us to
provide access to interest rate swap transactions for our customers without creating the swap ourselves. These swap
guarantees are accounted for as credit derivatives under FASB ASC Topic 815, Derivatives and Hedging.
At December 31, 2013, there were 101 variable-rate to fixed-rate swap transactions between the third-party financial
institutions and our customers. The initial notional aggregated amount was approximately $423.9 million, with maturities
ranging from three months to twelve years. The aggregate fair value of these swaps to the customers was a liability of
$17.8 million as of December 31, 2013, of which 89 swaps, with a liability of $18.2 million, were in paying positions to a
third party. We had reserves of $70,000 for the swap guarantees.
17. FAIR VALUE DISCLOSURES
Fair Value of Financial Assets
ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy
that prioritizes the use of inputs used in valuation methodologies into the following three levels:
Level 1: Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active
markets. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to
measure fair value whenever available.
Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets;
inputs to the valuation methodology include quoted prices for identical or similar assets or liabilities in markets that
are not active; or inputs to the valuation methodology that are derived principally from or can be corroborated by
observable market data by correlation or other means.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3
instruments whose value is determined using discounted cash flow
assets and liabilities include financial
methodologies, as well as instruments for which the determination of fair value requires significant management
judgment or estimation.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general
classification of such instruments pursuant to the valuation hierarchy, is set forth below.
The table below presents the balances of assets measured at fair value as of December 31, 2013 (there are no material
liabilities measured at fair value):
Description
Assets Measured at Fair Value on a Recurring Basis:
Available-for-sale securities:
Collateralized mortgage obligations
FNMA
FHLMC
GNMA
U.S. Government and agencies
State and political subdivisions
Total assets measured at fair value on a recurring basis
Assets Measured at Fair Value on a Nonrecurring Basis:
Other real estate owned
Impaired loans (collateral dependent)
Total assets measured at fair value on a nonrecurring basis
95
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Fair Value
$ 97,557
367,128
124,495
95,592
32,158
100,185
$817,115
$ —
—
—
—
—
—
$ —
$—
—
—
—
—
—
$—
$—
—
$—
$ 97,557
367,128
124,495
95,592
32,158
100,185
$817,115
$ —
—
$ —
$ 4,532
38,379
$
4,532
38,379
$42,911
$ 42,911
The table below presents the balances of assets measured at fair value as of December 31, 2012 (there were no material
liabilities measured at fair value):
Description
Assets Measured at Fair Value on a Recurring Basis:
Available-for-sale securities:
Collateralized mortgage obligations
FNMA
FHLMC
GNMA
U.S. Government and agencies
State and political subdivisions
Reverse mortgage related assets
Total assets measured at fair value on a recurring basis
Assets Measured at Fair Value on a Nonrecurring Basis:
Other real estate owned
Impaired loans (collateral dependent)
Total assets measured at fair value on a nonrecurring basis
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Fair Value
$252,300
406,255
59,650
132,455
46,990
3,209
19,686
$252,300
406,255
59,650
132,455
46,990
3,209
—
—
—
—
—
—
—
19,686
$900,859
$19,686
$920,545
$ —
—
$ —
$ 4,622
52,904
$
4,622
52,904
$57,526
$ 57,526
$—
—
—
—
—
—
—
$—
$—
—
$—
Fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair
value is based upon internally developed models or obtained from third parties that primarily use, as inputs, observable
market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair
value. These adjustments may include unobservable parameters. Our valuation methodologies may produce a fair value
calculation that may not be indicative of net realizable value or reflective of future fair values. While we believe our
valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies
or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value
at the reporting date.
Available-for-sale securities. As of December 31, 2013, securities classified as available for sale are reported at fair value
using Level 2 inputs. As a result of the consolidation of the reverse mortgage trust, there were no securities with Level 3
inputs as of December 31, 2013. Included in the Level 2 total are approximately $32.2 million in Federal Agency
debentures, $684.8 million in Federal Agency MBS and $100.2 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.
Reverse Mortgage Related Assets. The amount included in the reverse mortgage related assets category at December 31,
2012 represents the fair value of the BBB-rated tranche of a reverse mortgage security (reverse mortgage trading asset)
and the SASCO 2002-RM1’s Class “O” certificates.
There has never been an active market for the reverse mortgage trading asset. As such, we classified these trading
assets 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
the measurement date. The unobservable inputs reflect management’s
transaction between market participants at
96
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 tranches of this
asset class. The unobservable inputs consist of prepayments, house price appreciation and interest rates. Our sensitivity
analysis completed at December 31, 2013, showed that any increase or decrease in these inputs would not have a
significant impact on the fair value of these assets. The value assigned to this security therefore is determined primarily
through a discounted cash flow analysis. All assumptions required a significant degree of management judgment.
The class “O” certificates are Level 3 because there is no active market and no observable inputs that reflect quoted
prices for identical assets in active markets (Level 1) or inputs other than quoted prices that are observable for the asset
through corroboration with observable market data (Level 2). To establish the fair value for the Level 3 security, a “mark-
to-model” has been developed using the income approach described in ASC 820-10-35-32 and is similar to the
methodology used to value our trading assets described above.
As a result of the consolidation of the reverse mortgage trust in 2013, the balances of the reverse mortgages and
related securities (including the trading securities) were eliminated in consolidation.
The changes in Level 3 assets measured at fair value on a recurring basis are summarized as follows:
Balance at December 31, 2011
Total net income for the year included in net income
Contractual monthly advances of principal
Mark-to-market adjustment
Balance at December 31, 2012
Mark-to-market adjustment
Reverse mortgage securitization trust consolidation
Balance at December 31, 2013
Reverse
Mortgage
Related
Assets
$ 16,368
33
—
3,285
$ 19,686
(125)
(19,561)
$ —
Other Real Estate Owned. Other real estate owned consists of loan collateral which has been repossessed through
foreclosure or other measures. Initially, foreclosed assets are recorded as held for sale at the lower of the loan balance or
fair value of the collateral less estimated selling costs. Subsequent to foreclosure, valuations are updated periodically and
the assets may be marked down further, reflecting a new cost basis. Due to the continuing weakness in the real estate
market, we utilize a more significant level of unobservable inputs and, as such, have reclassified the hierarchical levels of
both Other Real Estate Owned and Impaired Loans to Level 3 for 2013. The fair value of our real estate owned was
estimated using Level 3 inputs based on appraisals obtained from third parties.
Impaired Loans. We evaluate and value impaired loans at the time the loan is identified as impaired, and the fair values of
such loans are estimated using Level 3 inputs in the fair value hierarchy. The collateral for each loan has a unique
appraisal and our discount of the value is based on the factors unique to each impaired loan. The significant unobservable
input in determining the fair value is our subjective discount on appraisals of the collateral securing the loan, which ranges
from 10% — 50%. Collateral may consist of real estate and/or business assets including equipment, inventory and
accounts receivable. The value of these assets is determined based on appraisals by qualified licensed appraisers hired by
us. Appraised and reported values may be discounted based on our historical knowledge, changes in market conditions
from the time of valuation, estimated costs to sell, and/or our expertise and knowledge of the customer and the customer’s
business.
Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans,
has a gross amount of $38.4 million and $52.9 million at December 31, 2013 and December 31, 2012, respectively. The
valuation allowance on impaired loans was $4.9 million as of December 31, 2013 and $5.0 million as of December 31,
2012.
97
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 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. Since quoted market prices are not available, fair value is estimated using
quoted prices for similar securities, which we obtain from a third party vendor. We utilize one of the largest providers of
securities pricing in the industry and management periodically assesses the inputs used by this vendor to price the various
types of securities owned by us to validate the vendor’s methodology. The fair value of our investment in reverse
mortgages is based on the net present value of estimated cash flows which have been updated to reflect external appraisals
of the underlying collateral. For additional discussion of our mortgage-backed securities trading, see Note 1 to the
Consolidated Financial Statements.
Loans held-for-sale. Loans held-for-sale are carried at the lower of cost or market of the aggregate, or in some cases,
individual loans.
Loans. Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by
type: commercial, commercial mortgages, construction, residential mortgages, and consumer. For loans that reprice
frequently, the book value approximates fair value. The fair values of other types of loans are estimated by discounting
expected cash flows using the current rates at which similar loans would be made to borrowers with comparable credit
ratings and for similar remaining maturities. The fair value of nonperforming loans is based on recent external appraisals
of the underlying collateral. Estimated cash flows, discounted using a rate commensurate with current rates and the risk
associated with the estimated cash flows, are utilized if appraisals are not available. This technique does not contemplate
an exit price.
Reverse Mortgage Related Assets. Reverse mortgage related assets include reverse mortgage loans, SASCO 2002-RM1’s
Class “O” certificates and the BBB-rated tranche of this reverse mortgage security.
For additional information on these reverse mortgage related assets, see Note 6 to our Consolidated Financial Statements
and our discussion earlier in this Note.
Bank-Owned Life Insurance. The estimated fair value approximates the book value for this investment.
Stock in the Federal Home Loan Bank of Pittsburgh: The fair value of FHLB stock is assumed to be essentially equal to
its cost basis, since the stock is non-marketable but redeemable at its par value.
Demand Deposits, Savings Deposits, and Time Deposits. The fair value of deposits with no stated maturity, such as
noninterest-bearing demand deposits, money market and interest-bearing demand deposits, is assumed to be equal to the
amount payable on demand. The fair value of time deposits is based on the discounted value of contractual cash flows.
The discount rate is estimated using 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.
98
Off-Balance Sheet Instruments. The fair value of off-balance sheet instruments, including commitments to extend credit
and standby letters of credit, approximates the recorded net deferred fee amounts, which are not significant. Because
commitments to extend credit and letters of credit are generally not assignable by either us or the borrower, they only have
value to us and the borrower.
The book value and estimated fair value of our financial instruments are as follows:
At December 31,
(In Thousands)
Financial assets:
Cash and cash equivalents
Investment securities
Loans, held-for-sale
Loans, net
Reverse mortgage related assets
Stock in Federal Home Loan Bank of Pittsburgh
Accrued interest receivable
Financial liabilities:
Deposits
Borrowed funds
Standby letters of credit
Accrued interest payable
Fair Value
Measurement
2013
2012
Book Value
Fair Value
Book Value
Fair Value
Level 1
See previous
table
Level 3
Level 3
Level 3
Level 2
Level 2
Level 2
Level 2
Level 3
Level 2
484,426
484,426
$ 500,887
$ 500,887
817,115
31,491
2,904,976
37,328
35,869
10,798
3,186,942
903,831
248
838
817,115
31,491
2,871,499
37,328
35,869
10,798
2,982,420
904,804
248
838
900,859
12,758
2,723,916
19,229
31,165
9,652
3,274,963
637,266
224
1,099
900,859
12,758
2,746,001
19,229
31,165
9,652
3,174,907
638,375
224
1,099
The estimated fair value of our off-balance sheet financial instruments is as follows:
December 31,
(In Thousands)
Off-balance sheet instruments:
18. RELATED PARTY TRANSACTIONS
2013
2012
$—
$—
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. They 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 $2.0 million and $2.1 million at December 31, 2013 and 2012, respectively. During 2013, new loans and credit
line advances to such related parties amounted to $107,000 and repayments amounted to $304,000.
19. 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 three segments. There is one
segment for each of WSFS Bank, Cash Connect, (the ATM division of WSFS Bank), and Trust and Wealth Management.
The WSFS Bank segment provides financial products to commercial and retail customers through its 51 offices
located in Delaware (41), Pennsylvania (8) and Virginia (1) and Nevada (1). Retail and Commercial Banking,
Commercial Real Estate Lending and other banking business units 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 in accordance with ASC
280.
99
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.
The Wealth Management division provides a broad array of fiduciary, investment management, credit and deposit
products to clients through four businesses. WSFS Investment Group, Inc. provides insurance and brokerage products
primarily to our retail banking clients. Cypress Capital Management, LLC (“Cypress”) is a registered investment advisor
with over $614 million in assets under management. Cypress’ primary market segment is high net worth individuals,
offering a ‘balanced’ investment style focused on preservation of capital and current income. Christiana Trust, with $8.9
billion in assets under administration including approximately $497 million in assets under management, provides
fiduciary and investment services to personal trust clients, trustee, agency, custodial and commercial domicile services to
corporate and institutional clients. WSFS Private Banking serves high net worth clients by delivering credit and deposit
products and partnering with Cypress, Christiana Trust and WSFS Investment Group to deliver investment management
and fiduciary products and services.
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, 2013, 2012, and 2011 follows:
For the Year Ended December 31, 2013:
(In Thousands)
External customer revenues:
Interest income
Noninterest income
Total external customer revenues
Intersegment revenues:
Interest income
Noninterest income
Total intersegment revenues
Total revenue
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
Income before taxes
Income tax provision
Consolidated net income
Cash and cash equivalents
Other segment assets
Total segment assets at December 31, 2013
Capital expenditures
WSFS
Bank
Cash
Connect
Trust &
Wealth
Management
Total
$ 139,082
40,479
179,561
3,603
6,346
9,949
$ —
$
23,746
23,746
—
845
845
7,840
15,926
23,766
5,749
109
5,858
189,510
24,591
29,624
14,744
107,195
6,759
128,698
5,749
954
6,703
—
12,950
—
12,950
1,541
2,237
3,778
590
12,784
413
13,787
2,062
4,109
6,171
135,401
16,728
19,958
$
54,109
$
7,863
$
9,666
$ 146,922
80,151
227,073
9,352
7,300
16,652
243,725
15,334
132,929
7,172
155,435
9,352
7,300
16,652
172,087
71,638
24,756
46,882
$
$
$
73,017
3,838,525
$408,096
1,965
$3,911,542
$410,061
$
3,313
190,847
$194,160
$ 484,426
4,031,337
$4,515,763
$
2,232
$
628
$ —
$
2,860
100
For the Year Ended December 31, 2012:
(In Thousands)
External customer revenues:
Interest income
Noninterest income
Total external customer revenues
Intersegment revenues:
Interest income
Noninterest income
Total intersegment revenues
Total revenue
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
Income before taxes
Income tax provision
Consolidated net income
Cash and cash equivalents
Other segment assets
WSFS Bank
Cash
Connect
Trust &
Wealth
Management
Total
$ 141,986
54,225
$ —
18,749
196,211
18,749
$
8,301
13,719
22,020
$ 150,287
86,693
236,980
4,032
8,563
12,595
208,806
22,397
112,071
32,222
166,690
5,719
884
6,603
—
779
779
5,719
105
5,824
19,528
27,844
—
9,549
—
9,549
1,368
2,219
3,587
891
11,725
(169)
12,447
2,664
6,344
9,008
173,293
13,136
21,455
$
35,513
$
6,392
$
6,389
9,751
9,447
19,198
256,178
23,288
133,345
32,053
188,686
9,751
9,447
19,198
207,884
48,294
16,983
31,311
$
$
$
68,419
3,683,073
$430,382
1,605
$
2,086
189,583
$ 500,887
3,874,261
Total segment assets at December 31, 2012
$3,751,492
$431,987
$191,669
$4,375,148
Capital expenditures
$
7,796
$
405
$
27
$
8,228
101
For the Year Ended December 31, 2011:
(In Thousands)
External customer revenues:
Interest income
Noninterest income
Total external customer revenues
Intersegment revenues:
Interest income
Noninterest income
Total intersegment revenues
Total revenue
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
WSFS Bank
Cash
Connect
Trust &
Wealth
Management
Total
$ 149,313
34,959
$ —
15,618
184,272
15,618
$
9,329
13,011
22,340
$ 158,642
63,588
222,230
4,414
7,447
11,861
196,133
31,345
108,061
26,641
166,047
6,122
867
6,989
—
724
724
6,122
143
6,265
10,536
8,314
18,850
16,342
28,605
241,080
—
7,883
—
7,883
1,235
1,578
2,813
1,260
11,533
1,355
14,148
3,179
5,869
9,048
32,605
127,477
27,996
188,078
10,536
8,314
18,850
173,036
10,696
23,196
206,928
Income before taxes and extraordinary items
Income tax provision
$
23,097
$
5,646
$
5,409
$
$
34,152
11,475
22,677
$
48,107
3,618,744
$416,949
2,155
$
2,961
200,092
$ 468,017
3,820,991
Total segment assets at December 31, 2011
$3,666,851
$419,104
$203,053
$4,289,008
Capital expenditures
$
8,877
$
1,291
$
326
$
10,494
102
Consolidated net income
Cash and cash equivalents
Other segment assets
20. PARENT COMPANY FINANCIAL INFORMATION
Condensed Statement of Financial Condition
December 31,
(In Thousands)
Assets:
Cash
Investment securities, available-for-sale
Investment in subsidiaries
Investment in Capital Trust III
Other assets
Total assets
Liabilities:
Trust Preferred
Senior Debt
Interest payable
Other liabilities
Total liabilities
Stockholders’ equity:
Preferred stock
Common stock
Capital in excess of par value
Accumulated other comprehensive income
Retained earnings
Treasury stock
Total stockholders’ equity
Total liabilities and stockholders’ equity
Condensed Statement of Operations
Year Ended December 31,
(In Thousands)
Income:
Interest income
Noninterest and dividend income
Reverse mortgage consolidation gain
Expenses:
Interest expense
Other operating expenses
Income (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 income allocable to common stockholders
103
2013
2012
$ 19,311
—
481,896
2,011
2,920
$ 62,244
7,096
471,236
2,011
2,451
$ 506,138
$ 545,038
$ 67,011
55,000
399
678
$ 67,011
55,000
407
1,566
123,088
123,984
—
185
178,477
(21,294)
473,962
(248,280)
1
184
222,978
12,943
433,228
(248,280)
383,050
421,054
$ 506,138
$ 545,038
2013
2012
2011
$ 2,455
9,983
3,801
$ 1,853
139
—
$ 1,021
153
—
16,239
1,992
1,174
5,113
(737)
4,376
11,863
35,019
46,882
(1,633)
2,776
(186)
2,590
(598)
31,909
31,311
(2,770)
1,375
419
1,794
(620)
23,297
22,677
(2,770)
$45,249
$28,541
$19,907
Condensed Statement of Cash Flows
Year Ended December 31,
2013
2012
2011
(In Thousands)
Operating activities:
Net income
Adjustments to reconcile net income to net cash used for operating activities:
Equity in undistributed income of subsidiaries
Reverse mortgage consolidation gain
Increase in capitalized interest
Decrease (increase) in other assets
Increase in other liabilities
Net cash provided by (used for) operating activities
Investing activities:
Purchase of mortgage backed securities
Net cash used for investing activities
Financing activities:
Issuance of common stock
Proceeds from the issuance of long-term debt
Redemption of preferred stock
Payments to repurchase stock warrants
Cash dividends paid
Net cash provided by (used for) financing activities
Increase (decrease) in cash
Cash at beginning of period
Cash at end of period
$ 46,882
$ 31,311 $ 22,677
(35,019)
(3,801)
(801)
3,831
245
(31,909)
—
(693)
3,531
384
(23,297)
—
(280)
(98)
32
11,337
2,624
(966)
—
—
—
—
4,353
—
(52,625)
—
(5,998)
2,503
52,681
—
(1,800)
(6,810)
(54,270)
46,574
(42,933)
62,244
49,198
13,046
(2,500)
(2,500)
3,709
—
—
—
(6,718)
(3,009)
(6,475)
19,521
$ 19,311
$ 62,244 $ 13,046
21. CHANGE IN ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income (loss) includes unrealized gains and losses on available-for-sale
investments and unrecognized prior service costs on defined benefit pension plans. Changes to other accumulated other
comprehensive income (loss) are presented net of tax effect as a component of equity. Reclassification out of accumulated
other comprehensive is recorded on the statement of operations either as a gain or loss.
104
Changes to accumulated other comprehensive income (loss) by component are shown net of taxes in the following
tables for the period indicated:
(In Thousands)
Balance, December 31, 2010
Other comprehensive income before reclassifications
Less: Amounts reclassified from accumulated other
comprehensive loss
Net current-period other comprehensive loss
Balance, December 31, 2011
Other comprehensive income before reclassifications
Less: Amounts reclassified from accumulated other
comprehensive loss
Net current-period other comprehensive loss
Balance, December 31, 2012
Other comprehensive loss before reclassifications
Less: Amounts reclassified from accumulated other
comprehensive loss
Net current-period other comprehensive loss
Balance, December 31, 2013
Net unrealized
gains on
investment
securities
available-for-sale
Net unrealized
losses on defined
benefit pension
plan
Total
$ 6,996
7,702
(3,024)
4,678
$ 11,674
15,024
(13,283)
1,741
$ 13,415
(32,057)
(2,180)
(34,237)
$(20,822)
$(472)
$ 6,524
—
—
—
7,702
(3,024)
4,678
$(472)
$ 11,202
—
—
—
15,024
(13,283)
1,741
$(472)
$ 12,943
—
—
—
(32,057)
(2,180)
(34,237)
$(472)
$(21,294)
The statement of operations impacted by components of other comprehensive income are presented in the table
below.
(In Thousands)
Securities available-for-sale:
Realized gains on securities transactions
Income taxes
Twelve Months Ended
December 31,
2013
2012
2011
Affected line item in
Statements of
Operations
$ 3,516
(1,336)
$21,425
(8,142)
$ 4,878
(1,854)
Securities gains, net
Income tax provision
Net of tax
$ 2,180
$13,283
$ 3,024
22. LEGAL AND OTHER PROCEEDINGS
As previously disclosed in 2011, we were served with a complaint, filed in U.S. Bankruptcy Court for the Eastern
District of Pennsylvania, by a bankruptcy trustee relating to a former WSFS Bank customer. The complaint challenges the
Bank’s actions relating to the repayment of an outstanding loan and also seeks to avoid and recover the pre-bankruptcy
repayment of that loan, approximately $5.0 million. The matter has been captioned Goldstein v. Wilmington Savings Fund
Society, FSB (In re: Universal Marketing, Inc.), Chapter 7, Case No. 09-15404 (ELF), Adv. Pro. No. 11-00512. We
believe we acted appropriately and we are vigorously defending ourselves against the complaint.
Based upon available information we believe the estimate of the aggregate range of reasonably possible losses for
this legal proceeding was from approximately $250,000 to approximately $5.0 million at December 31, 2013.
105
There were no material changes or additions to other significant pending legal or other proceedings involving us
other than those arising out of routine operations. Management does not anticipate that the ultimate liability, if any, arising
out of such other proceedings will have a material effect on the Consolidated Financial Statements.
23. SUBSEQUENT EVENTS
As a result of consolidation of the reverse mortgage trust during the third quarter of 2013, a deferred tax asset
(“DTA”) was recorded at that time. However, because the reverse mortgage trust was not able to be consolidated for
income tax purposes for 2013 since it was a separate entity real estate investment trust, a full valuation allowance was also
recorded at that time on the DTA due to the uncertainty of realizing this benefit since realizability of the DTA is
dependent on taxable income of the separate entity. On January 27, 2014, WSFS completed the legal call of the reverse
mortgage trust bonds and the redemption of the trust’s preferred shareholders, eliminating this uncertainty since the
reverse mortgage trust’s assets have now been combined with the Bank’s for tax purposes. As a result, WSFS has
removed the valuation allowance, and recorded a tax benefit of approximately $6.6 million during January 2014. This will
positively impact diluted EPS and tangible book value per share by approximately $0.74 in the first quarter 2014 results.
QUARTERLY FINANCIAL SUMMARY (Unaudited)
Three months ended
12/31/2013 9/30/2013 6/30/2013 3/31/2013 12/31/2012 9/30/2012 6/30/2012 3/31/2012
(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 (loss) before taxes
Income tax provision (benefit)
Net Income
Dividends on preferred stock and accretion
$38,333
3,787
$37,116
3,710
$35,882
3,826
$35,591
4,011
$36,787
5,289
$36,514
5,621
$37,763
5,685
$39,223
6,693
34,546
1,292
33,406
1,969
32,056
1,680
31,580
2,231
31,498
3,674
30,893
3,751
32,078
16,383
32,530
8,245
33,254
19,796
34,598
18,452
6,378
12,074
31,437
22,742
32,809
21,370
7,210
30,376
19,539
33,152
16,763
5,855
29,349
18,074
32,370
15,053
5,313
14,160
10,908
9,740
27,824
21,195
37,186
11,833
4,275
7,558
27,142
19,748
32,153
14,737
4,758
15,695
28,992
33,017
11,670
4,340
24,285
16,758
30,989
10,054
3,610
9,979
7,330
6,444
of discount
—
332
609
692
693
693
692
692
Net Income (loss) allocable to common
stockholders
Earnings per share:
Basic
Diluted
$12,074
$13,828
$10,299
$ 9,048
$ 6,865
$ 9,286
$ 6,638
$ 5,752
$
1.36
1.33
$
1.57
1.54
$
1.17
1.16
$
1.03
1.02
$
0.79
0.78
$
1.07
1.06
$
0.76
0.76
$
0.66
0.66
106
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
With the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated 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.
Internal Control Over Financial Reporting
During the year ended December 31, 2013, 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.
107
Management’s Report on Internal Control Over Financial Reporting
To Our Stockholders:
Management of WSFS Financial Corporation (“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, 2013. 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 (1992). Based on this
assessment, management has concluded that, as of December 31, 2013, the Corporation’s internal control over financial
reporting is effective based on those criteria.
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.
KPMG LLP, an independent registered public accounting firm, has audited the Corporation’s consolidated financial
statements as of and for the year ended December 31, 2013 and the effectiveness of the Corporation’s internal control over
financial reporting as of December 31, 2013, as stated in their reports, which are included herein.
/s/ Mark A. Turner
Mark A. Turner
President and Chief Executive Officer
March 17, 2014
/s/ Stephen A. Fowle
Stephen A. Fowle
Executive Vice President and
Chief Financial Officer
108
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
WSFS Financial Corporation:
We have audited WSFS Financial Corporation and subsidiaries (the “Company”) internal control over financial reporting
as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework (1992) 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, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2013, based on criteria established in Internal Control – Integrated Framework (1992) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated statements of condition of WSFS Financial Corporation and subsidiaries as of December 31,
2013 and 2012, and the related consolidated statements of operations, comprehensive income, changes in stockholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2013, and our report dated
March 17, 2014 expressed an unqualified opinion on those consolidated financial statements.
Philadelphia, Pennsylvania
March 17, 2014
/s/ KPMG LLP
109
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 24, 2014 (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
Shown below is information as of December 31, 2013 with respect to compensation plans under which equity securities of
the Registrant are authorized for issuance.
Equity Compensation Plan Information
(a)
(b)
Number of Securities
to be issued upon
exercise of outstanding
options, warrants and
rights
Weighted-Average
exercise price of
outstanding options,
warrants and rights
(c)
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
713,820
N/A
713,820
$47.34
N/A
$47.34
548,845
N/A
548,845
(1) Plans approved by stockholders include the 1997 Stock Option Plan, as amended, the 2005 Incentive Plan, as amended, and the 2013 Incentive Plan.
110
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, 2013 and 2012, 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, 2013, together
with the related notes and the report of KPMG LLP, independent registered public accounting firm.
2.
Schedules omitted as they are not applicable.
111
The following exhibits are incorporated by reference herein or annexed to this Annual Report:
Exhibit
Number
Description of Document
3.1
3.2
3.3
4.1
4.2
4.3
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.11
10.12
Registrant’s Amended and Restated Certificate of Incorporation, 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, 2011.
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.
WSFS Financial Corporation Severance Policy for Executive Vice Presidents dated February 28, 2008,
incorporated herein by reference to Exhibit 10.4 of the Registrant’s Annual Report on Form 10-K for the year
ended December 31, 2008.
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, incorporated herein by reference to Exhibit 10.6 of the Registrant’s Annual Report on
Form 10-K for the year ended December 31, 2008.
Amendment to the WSFS Financial Corporation Severance Policy for Executive Vice Presidents dated
December 31, 2008, incorporated herein by reference to Exhibit 10.7 of the Registrant’s Annual Report on
Form 10-K for the year ended 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.
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.
Warrant Repurchase Letter Agreement incorporated herein by reference to Exhibit 10 of the Registrant’s
Current Report on Form 8-K filed on September 12, 2012.
112
Exhibit
Number
10.13
21
23
24
31.1
31.2
32
Description of Document
Agreement and Plan of Reorganization, dated as of November 24, 2013, by and between WSFS Financial
Corporation and First Wyoming Financial Corporation, as amended, incorporated herein by reference to
Exhibit 2.1 of the Registrant’s Form S-4 filed on February 19, 2014.
Subsidiaries of Registrant.
Consent of KPMG LLP
Power of Attorney (included on signature page to this report)
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
101.INS
XBRL Instance Document *
101.SCH
XBRL Schema Document *
101.CAL
XBRL Calculation Linkbase Document *
101.LAB
XBRL Labels Linkbase Document *
101.PRE
XBRL Presentation Linkbase Document *
101.DEF
XBRL Definition Linkbase Document *
* Submitted as Exhibits 101 to this Form 10-K are documents formatted in XBRL (Extensible Business Reporting
Language). Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a
registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the
Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability.
Exhibits 10.1 through 10.10 represent management contracts or compensatory plan arrangements.
113
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.
SIGNATURES
Date: March 17, 2014
WSFS FINANCIAL CORPORATION
BY: /s/ Mark A. Turner
Mark A. Turner
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 17, 2014
Date: March 17, 2014
Date: March 17, 2014
Date: March 17, 2014
Date: March 17, 2014
Date: March 17, 2014
Date: March 17, 2014
Date: March 17, 2014
Date: March 17, 2014
BY: /s/ Marvin N. Schoenhals
Marvin N. Schoenhals
Chairman
BY: /s/ Mark A. Turner
Mark A. Turner
President , Chief Executive Officer and
Director
BY: /s/ Charles G. Cheleden
Charles G. Cheleden
Vice Chairman and Lead Director
BY: /s/ Anat Bird
Anat Bird
Director
BY: /s/ Eleuthère I. du Pont
Eleuthère I. du Pont
Director
BY: /s/ Jennifer W. Davis
Jennifer W. Davis
Director
BY: /s/ Donald W. Delson
Donald W. Delson
Director
BY: /s/ Zissimos A. Frangopoulos
Zissimos A. Frangopoulos
Director
BY: /s/ Calvert A. Morgan, Jr.
Calvert A. Morgan, Jr.
Director
114
Date: March 17, 2014
Date: March 17, 2014
Date: March 17, 2014
BY: /s/ David G. Turner
David G. Turner
Director
BY: /s/ Stephen A. Fowle
Stephen A. Fowle
Executive Vice President and Chief
Financial Officer
BY: /s/ Charles K. Mosher
Charles K. Mosher
Senior Vice President and Controller
115
[THIS PAGE INTENTIONALLY LEFT BLANK]
2013
Annual Report
About
WSFS Financial Corporation
n g a g e D aSSociateS
e
erS
n
w
o
r
u
o
r
o
f
e
u
l
a
v
D
n
a
g
r
o
wing cuStom e r a D v
t e S
a
c
o
D
e
l
i
v
e
r
i
n
g
S
t
e
l
l
a
r
S
e
r
v
ic
e
WSFS Financial Corporation is a multi-billion dollar financial services company.
Its principal subsidiary, WSFS Bank, is the oldest, locally managed bank
and trust company headquartered in Delaware. WSFS has 52 offices located
in Delaware, Pennsylvania, Virginia and Nevada, and provides comprehensive
financial services including commercial banking, retail banking and trust
and wealth management.
Serving the Delaware Valley since 1832, WSFS Bank is the seventh oldest
bank in the United States continuously operating under the same name.
Other subsidiaries or divisions of WSFS Financial Corporation include:
Cash Connect® is a premier provider of ATM vault cash and related services
in the United States and operates more than 450 ATMs for WSFS Bank,
which has the largest branded ATM network in Delaware. Christiana Trust
provides fiduciary and investment services to personal trust clients, and
trustee, agency, custodial and commercial domicile services to corporate
and institutional clients. WSFS Investment Group, Inc. provides insurance
and brokerage products primarily to our retail banking clients. Cypress
Capital Management, LLC is a registered investment advisor with a primary
market segment of high net worth individuals offering a balanced investment
style focused on preservation of capital and current income. Array Financial
is a leading Delaware Valley mortgage banking company, specializing in a
variety of residential mortgage and refinancing solutions, and Arrow Land
Transfer is a related abstract and title company.
WSFS Bank Center • 500 Delaware Avenue, Wilmington, DE 19801 • wsfsbank.com
©2014 WSFS Financial Corporation. All rights reserved.
wsfsbank.com
Website
Brooklyn, NY 11219
6201 15th Avenue
Transfer Agent
American Stock Transfer & Trust Company, LLC
stockholderrelations@wsfsbank.com
302-571-7264
Wilmington, DE 19801
500 Delaware Avenue
WSFS Bank Center
Investor Relations
WSFS Financial Corporation
Stockholders or others seeking information regarding the Company may call or write:
Information
Stockholder