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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
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
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WSFS FINANCIAL CORPORATION
--------------------------------
Delaware 22-2866913
- --------------------------------- ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
838 Market Street, Wilmington, Delaware 19899
- --------------------------------------- ---------
(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: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES _X_ NO___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
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 the Nasdaq National Market(sm) as of March 16, 2001 was $97,431,120.
For purposes of this calculation only, affiliates are deemed to be directors,
executive officers and beneficial owners of greater than 5% of the outstanding
shares.
As of March 16, 2001, there were issued and outstanding 10,038,634 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 26, 2001
are incorporated by reference in Part III hereof.
WSFS FINANCIAL CORPORATION
TABLE OF CONTENTS
Part I
Page
Item 1. Business................................................................................ 3
Item 2. Properties.............................................................................. 24
Item 3. Legal Proceedings....................................................................... 27
Item 4. Submission of Matters to a Vote of Security Holders..................................... 27
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 28
Item 6. Selected Financial Data................................................................. 29
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................... 30
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............................. 47
Item 8. Financial Statements and Supplementary Data............................................. 47
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................................ 95
Part III
Item 10. Directors and Executive Officers of the Registrant...................................... 95
Item 11. Executive Compensation.................................................................. 95
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................... 95
Item 13. Certain Relationships and Related Transactions......................................... 95
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................... 96
Signatures.............................................................................. 98
-2-
PART I
Item 1. Business
GENERAL
WSFS Financial Corporation (Company or Corporation) is a thrift holding
company headquartered in Wilmington, Delaware. Substantially all of the
Corporation's assets are held by its subsidiary, Wilmington Savings Fund
Society, FSB (WSFS). Founded in 1832, WSFS is one of the oldest financial
institutions in the country. As a federal savings bank which was formerly
chartered as a state mutual savings bank, WSFS enjoys broader investment powers
than most other financial institutions. These grandfathered powers have allowed
WSFS to diversify its revenue sources to a greater extent than most savings
banks. WSFS has served the residents of the Delaware Valley for 169 years. WSFS
is the largest thrift institution headquartered in Delaware and among the four
largest financial institutions in the state on the basis of total deposits
traditionally garnered in-market. The Corporation's primary market area is the
Mid-Atlantic region of the United States which is characterized by a diversified
manufacturing and service economy. The long-term goal of the Corporation is to
maintain its high-performing financial services company status by focusing on
its core banking business while developing unique profitable niches in
complementary businesses which may operate outside WSFS' geographical footprint.
WSFS provides residential and commercial real estate, commercial and
consumer lending services, as well as cash management services funding these
activities primarily with retail deposits and borrowings. The banking operations
of WSFS are conducted from 28 retail banking offices located in northern
Delaware and southeastern Pennsylvania. Deposits are insured by the Federal
Deposit Insurance Corporation (FDIC).
Fully owned subsidiaries of WSFS include WSFS Credit Corporation (WCC),
which is engaged primarily in indirect motor vehicle leasing; and 838 Investment
Group, Inc., which markets various insurance products and securities through
WSFS' branch system. An additional subsidiary, Star States Development Company
(SSDC), is currently inactive having sold its final parcel of land in 1998.
On December 21, 2000, the Board of Directors of the Corporation approved
plans to discontinue the operations of WCC, and as a result, the Company has
exited the indirect auto leasing business. WCC, which had 7,300 lease contracts
and 2,700 loan contracts at December 31, 2000, no longer accepts new
applications but will continue to service its existing loans and leases.
Management estimates that substantially all loan and lease contracts will mature
by December 2003. As discussed in Note 2 of the Financial Statements, the
results of WCC are presented as discontinued operations, retroactively restated
for all periods presented.
In August 1999, WSFS Financial Corporation invested $5.5 million in
CustomerOne Financial Network, Inc. (C1FN), a St. Louis, Missouri based
corporation formed in 1998 for the express purpose of providing
direct-to-consumer marketing, servicing, Internet development and technology
management for "branchless" financial services. As a result of this investment,
C1FN's Internet-only banking structure became part of everbank.com(TM), a
division of WSFS. C1FN assists in managing the operations of everbank.com(TM).
everbank.com(TM) began marketing Internet-only banking to a national clientele
in November of 1999.
WSFS is the single largest shareholder in C1FN, has majority control
through a voting trust and as a result, consolidates the results of C1FN in the
WSFS Financial Statements. For the year ended December 31, 2000 WSFS shared in
42% of the operating results of C1FN. In addition, WSFS holds warrants for the
purchase of 20% additional ownership of C1FN, as well as the option and under
certain circumstances the obligation to invest an additional $5.4 million in the
year 2000, at current offered ownership prices. This option expired on July 5,
2000 with no additional investment being made by WSFS.
On December 29, 2000, C1FN received a $5.0 million investment from a third
party investor with a conditional commitment to invest an additional $12.5
million if and when a separate bank charter is obtained for everbank.com(TM).
This investment effectively reduces WSFS' economic ownership of C1FN at December
31, 2000
-3-
from 42% to 29%. Since WSFS retains majority control of C1FN through a voting
trust, the results of C1FN will continue to be consolidated into the operating
results of WSFS until everbank.com(TM) obtains a separate banking charter.
Additionally, in November 1999, the Corporation expanded the local retail
home equity lending business of Community Credit Corporation (CCC) which began
operations in 1994. CCC was renamed Wilmington National Finance, Inc. (WNF)
which expanded its sales to a national level and now aggregates loans through
brokers and sells them to investors. WSFS retained a 51% ownership with the
remainder held by WNF's executives retained to lead the expansion of WNF. WSFS
also has warrants to obtain an additional 15% ownership in WNF. Both C1FN and
WNF are consolidated into the Financial Statements of the Corporation. See Note
19 of the Financial Statements, "Investments in Non-Wholly Owned Subsidiaries",
for further discussion.
The following discussion focuses on the major components of the Company's
operations and presents an overview of the significant changes in the
Corporation's results of operations for the past three fiscal years and
financial condition during the past two fiscal years. This discussion should be
reviewed in conjunction with the Consolidated Financial Statements and Notes
thereto presented elsewhere in this Annual Report.
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
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations (MD&A) are incorporated herein by reference.
-4-
INVESTMENT ACTIVITIES
The Company's short-term investment portfolio is intended to provide
collateral for borrowings and to meet liquidity requirements. Book values of
investment securities and short-term investments by category, stated in dollar
amounts and as a percent of total assets, follow:
December 31,
---------------------------------------------------------------------------
2000 1999 1998
---------------------- ----------------------- ----------------------
Percent Percent Percent
of of of
Amount Assets Amount Assets Amount Assets
------ --------- ------ ---------- ------ ----------
(Dollars In Thousands)
Held-to-Maturity:
Corporate bonds............................. $3,885 0.2% $ 6,855 0.4% $ 6,059 0.4%
State and political subdivisions ........... 10,861 0.6 1,757 0.1 1,583 0.1
------- --- ------- --- ------ ---
14,746 0.8 8,612 0.5 7,642 0.5
------- --- ------ ---
Available-for-Sale:
U.S. Government and agencies................ 1,893 0.1 28,436 1.6 30,219 1.9
Corporate bonds............................. 13,101 0.8 - - - -
Other investments........................... - 425 - - -
------- --- ------- --- ------ ---
14,994 0.9 28,861 1.6 30,219 1.9
------- --- ------- --- ------ ---
Short-term investments:
Federal funds sold and securities purchased
under agreements to resell.............. 3,500 0.2 - - 20,900 1.3
Interest-bearing deposits in other banks (1) 7,318 0.4 8,026 0.5 7,518 0.4
------- --- ------- --- ------ ---
10,818 0.6 8,026 0.5 28,418 1.7
------- --- ------- --- ------ ---
$40,558 2.3% $45,499 2.6% $66,279 4.1%
======= === ======= === ======= ===
(1) Interest-bearing deposits in other banks do not include deposits with a
maturity greater than one year.
In 2000, WSFS purchased $14 million in corporate bonds and $12 million in
U.S. Government securities, all of which were classified as available-for-sale,
and $9 million in municipal bonds which were classified as held-to-maturity.
There was also a $2 million corporate bond which was reclassified from
held-to-maturity to available-for-sale in 2000 with the adoption of SFAS No. 133
(see Note 20 of the Financial Statements for further discussion). In addition,
there were sales of U.S. Government securities totaling $25 million and a
$750,000 corporate call, from which gains of $18,000 and losses of $67,000 were
realized. There was also a sale of $10 million in U.S. Government securities in
January 2000, for which a loss of $289,000 was recognized in 1999, and a gain of
$40,000 on the sale of common stock received from the demutualization of
insurance companies of which WSFS was a policyholder. In 1999, WSFS purchased
$32 million in U.S. Government securities, and $2 million in corporate bonds,
all classified as available-for-sale, and $2 million in corporate bonds which
were initially classified as held-to-maturity but reclassified as available for
sale in 2000. In addition, there were sales of $20 million in U.S. Government
securities, also classified as available-for-sale. In 1998, WSFS purchased $20
million in U.S. Government securities of which $10 million was classified as
available for sale, and there were sales and calls of U.S. Government securities
totaling $20 million and $25 million, respectively. Losses of $9,000 and gains
of $30,000 were realized on the sales in 1999 and 1998, respectively. Reductions
in the other categories, for all years, were due to principal repayments.
-5-
The following table sets forth the terms to maturity and related weighted
average yields of investment securities and short-term investments at December
31, 2000. Substantially all of the related interest and dividends represent
taxable income. Yields on tax-exempt investments are calculated on the basis of
actual yields and not on a tax-equivalent basis, since the effect of the
equivilization is immaterial.
At December 31, 2000
--------------------
Amount Yield
------ ------
(Dollars in Thousands)
Held-to-Maturity:
Corporate bonds:
After one but within five years.............................................. $ 875 5.94%
After five but within ten years.............................................. 1,883 6.33
After ten years.............................................................. 1,127 7.30
-------
3,885 6.53
-------
State and political subdivisions (1):
After one but within five years.............................................. 2,449 7.27
After five but within ten years.............................................. 3,520 7.21
After ten years.............................................................. 4,892 6.03
-------
10,861 6.69
-------
Total debt securities, held-to-maturity........................................ 14,746 6.65
-------
Available-for-Sale:
U.S. Government and agencies:
Within one year............................................................. 1,848 5.86
After five but within ten years............................................. 45 7.31
-------
1,893 5.89
-------
Corporate bonds:
Within one year............................................................. 11,101 7.34
After ten years............................................................. 2,000 9.88
-------
13,101 7.72
-------
Total debt securities, available-for-sale...................................... 14,994 7.49
-------
Short-term investments:
Federal funds sold and securities purchased under agreement to resell 3,500 6.13
Interest-bearing deposits in other banks.................................... 7,318 5.58
-------
Total short-term investments................................................... 10,818 5.75
-------
$40,558 6.72%
=======
(1) Yields on state and political subdivisions are not calculated on a
tax-equivalent basis since the effect would be immaterial.
In addition to the foregoing investment securities, the Company has
maintained an investment portfolio of mortgage-backed securities, which
increased dramatically after 1993 as the Company implemented investment growth
strategies during subsequent years. Purchases of mortgage-backed securities,
including collateralized mortgage obligations, in 2000 totaled $210 million, all
of which were classified as available-for-sale. There were also sales of $195
million of mortgage-backed securities, as part of a deleveraging strategy, which
resulted in a net loss of $6,451,000, and a sale of $24 million in
mortgage-backed securities in January 2000 for which a loss of $730,000 was
recognized in 1999. Reductions in the other categories, for all years, were due
to principal repayments.
-6-
The following table sets forth the book values of mortgage-backed
securities and their related weighted average stated rates at the end of the
last three fiscal years.
December 31,
---------------------------------------------------------------------------
2000 1999 1998
-------------------- ----------------------- ----------------------
(Dollars In Thousands)
Stated Stated Stated
Amount Rate Amount Rate Amount Rate
------ ------ ------ ------ ------ ------
Held-to-Maturity:
Collateralized mortgage obligations (1)..... $56,091 6.75% $191,839 6.65% $175,619 6.78%
FNMA........................................ 24,908 6.05 31,065 6.23 40,881 6.26
FHLMC....................................... 26,664 6.04 33,036 6.15 42,337 6.16
GNMA ....................................... - - 852 6.48 1,044 6.93
Other....................................... - - 2,033 5.31 5,977 7.36
-------- ---- -------- ---- -------- ----
$107,663 6.41% $258,825 6.53% $265,858 6.61%
======== ==== ======== ==== ======== ====
Available-for-Sale:
Collateralized mortgage obligations (2)..... $229,882 7.04% $173,544 6.43% $168,997 6.54%
FNMA........................................ 1,141 7.25 - - - -
FHLMC....................................... 1,032 7.76 143 6.61 - -
GNMA........................................ - - 15,237 5.40 24,229 6.11
-------- ---- -------- ---- -------- ----
$232,055 7.04% $188,924 6.34% $193,226 6.49%
======== ==== ======== ==== ======== ====
(1) Includes $31.0 million, at December 31, 2000, in private issues from
Residential Funding Mortgage securities, Inc. with a fair market value of
$31.0 million
(2) Includes $37.5 million, $11.9 million and $11.3 million in private issues
of Residential Funding Mortgage Securities, Inc., Countrywide Funding Corp.
and G.E. Capital Mortgage Services, Inc., respectively, all stated at the
fair market value.
CREDIT EXTENSION ACTIVITIES
Traditionally, the majority of a typical thrift institution's loan
portfolio has consisted of first mortgage loans on residential properties.
However, as a result of various legislative and regulatory changes since 1980,
the commercial and consumer lending powers of WSFS have increased substantially.
Consequently, WSFS initiated a diversification strategy in fiscal year 1984
which included a significant increase in commercial real estate lending.
Commercial real estate lending was temporarily discontinued in 1990 and only
originations required by previous funding commitments were made. In 1994, WSFS
began to originate small business and commercial real estate loans in its
primary market area. WSFS' current lending activity is concentrated on lending
to consumers and small businesses in the Mid-Atlantic Region of the United
States.
-7-
The following table sets forth the composition of the Corporation's loan
portfolio by type of loan at each of the dates indicated. Other than as
disclosed below, the Company had no concentrations of loans exceeding 10% of
total loans at December 31, 2000:
December 31,
---------------------------------------------------------------------------
2000 1999 1998
-------------------- ----------------------- ----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars In Thousands)
Residential real estate (1) ................ $440,136 45.7% $393,243 45.7% $291,110 39.4%
Commercial real estate:
Commercial mortgage ........................ 190,707 19.8% 201,559 23.4% 226,063 30.6%
Construction ............................... 30,183 3.1% 21,561 2.5% 11,642 1.5%
-------- ----- -------- ----- -------- -----
Total commercial real estate ............. 220,890 22.9% 223,120 25.9% 237,705 32.1%
Commercial ................................. 151,887 15.7% 115,931 13.5% 97,524 13.2%
Consumer ................................... 175,269 18.2% 154,857 18.0% 141,238 19.1%
-------- ----- -------- ----- -------- -----
Gross loans ................................ 988,182 102.5% 887,151 103.1% 767,577 103.8%
Less:
Unearned income ............................ 3,268 0.3% 4,355 0.5% 5,383 0.7%
Allowance for loan losses .................. 21,423 2.2% 22,223 2.6% 22,732 3.1%
-------- ----- -------- ----- -------- -----
Net loans .................................. $963,491 100.0% $860,573 100.0% $739,462 100.0%
======== ===== ======== ===== ======== =====
[RESTUBBED]
December 31,
------------------------------------------------
1997 1996
--------------------- ----------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars In Thousands)
Residential real estate (1) ................ $287,349 39.1% $279,060 40.1%
Commercial real estate:
Commercial mortgage ........................ 238,533 32.5% 278,935 40.1%
Construction ............................... 12,553 1.7% 27,056 3.9%
-------- ----- -------- -----
Total commercial real estate ............. 251,086 34.2% 305,991 44.0%
Commercial ................................. 94,686 12.9% 28,602 4.1%
Consumer ................................... 130,069 17.7% 111,615 16.0%
-------- ----- -------- -----
Gross loans ................................ 763,190 103.9% 725,268 104.2%
Less:
Unearned income ............................ 4,407 0.6% 5,667 0.8%
Allowance for loan losses .................. 24,057 3.3% 23,527 3.4%
-------- ----- -------- -----
Net loans .................................. $734,726 100.0% $696,074 100.0%
======== ===== ======== =====
(1) Includes $23,274, $24,572, $3,103, $2,222, and $773 of residential mortgage
loans held-for-sale at December 31, 2000, 1999, 1998, 1997, and 1996,
respectively.
-8-
The following table sets forth information as of December 31, 2000
regarding the dollar amount of loans maturing in the Company's portfolios,
including scheduled repayments of principal, based on contractual terms to
maturity. In addition, the table sets forth the dollar amount of loans maturing
during the indicated periods, based on whether the loan has a fixed- or
adjustable-rate. Loans having no stated maturity or repayment schedule are
reported in the one year or less category.
Less than One to Over
One Year Five Years Five Years Total
-------- ---------- ----------- --------
(In Thousands)
Real estate loans (1)..................... $ 34,505 $172,706 $400,359 $607,570
Construction loans........................ 11,683 11,926 6,574 30,183
Commercial loans.......................... 41,309 40,514 70,064 151,887
Consumer loans ........................... 63,019 60,258 51,991 175,268
-------- -------- -------- --------
$150,516 $285,404 $528,988 $964,908
======== ======== ======== ========
Rate sensitivity:
Fixed................................... $ 48,549 $192,432 $214,526 $455,507
Adjustable ............................. 101,967 92,972 314,462 509,401
-------- -------- -------- --------
150,516 285,404 528,988 964,908
-------- -------- -------- --------
Gross loans .............................. $150,516 $285,404 $528,988 $964,908
======== ======== ======== ========
(1) Includes commercial mortgage loans; does not include loans held-for-sale.
The above schedule does not include any prepayment assumptions. Although
prepayments tend to be highly dependent upon the current interest rate
environment, management believes that the actual repricing and maturity of the
loan portfolio is significantly shorter than is reflected in the above table as
a result of prepayments.
Residential Real Estate Lending.
WSFS originates residential mortgage loans with loan-to-value ratios up to
97%; however, WSFS generally requires private mortgage insurance for up to 30%
of the mortgage amount on mortgage loans whose loan-to-value ratio exceeds 80%.
WSFS does not have any significant concentrations of such insurance with any one
insurer. On a very limited basis, WSFS originates/purchases loans with
loan-to-value ratios exceeding 80% without a private mortgage insurance
requirement. At December 31, 2000, the balance of all such loans was
approximately $16.4 million. Generally, residential mortgage loans originated or
purchased are underwritten and documented in accordance with standard
underwriting criteria published by FHLMC to assure maximum eligibility for
subsequent sale in the secondary market; however, unless loans are specifically
designated for sale, the Company holds newly originated loans in portfolio for
long-term investment. Among other things, title insurance is required, insuring
the priority of its lien, and fire and extended coverage casualty insurance for
the properties securing the residential loans. All properties securing
residential loans made by WSFS are appraised by independent appraisers selected
by WSFS and subject to review in accordance with WSFS standards.
The majority of residential real estate adjustable-rate loans currently
originated have interest rates that adjust yearly, after an initial period, with
the change in rate limited to two percentage points at any adjustment date. The
adjustments are generally based upon a margin (currently 2.75 percent) over the
weekly average yield on U.S. Treasury securities adjusted to a constant
maturity, as published by the Federal Reserve Board.
Generally, the maximum rate on these loans is up to six percent above the
initial interest rate. WSFS generally underwrites adjustable-rate loans under
standards consistent with private mortgage insurance and secondary market
criteria. WSFS does not originate adjustable-rate mortgages with payment
limitations that could produce negative amortization. Consistent with industry
practice in its market area, WSFS has typically originated adjustable-rate
mortgage loans with initially discounted interest rates. All such loans are
underwritten at the fully-indexed rate.
-9-
The retention of adjustable-rate mortgage loans in WSFS' loan portfolio
helps mitigate WSFS' risk to changes in interest rates. However, there are
unquantifiable credit risks resulting from potential increased costs to the
borrower as a result of the repricing of 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 WSFS to increase the sensitivity of its 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 WSFS' adjustable-rate mortgages will adjust
sufficiently to compensate for increases in WSFS' cost of funds during periods
of extreme interest rate increases.
The original contractual loan payment period for residential loans
originated is normally 10 to 30 years. Because borrowers may refinance or prepay
their loans without penalty, such loans normally remain outstanding for a
substantially shorter period of time. First mortgage loans customarily include
"due-on-sale" clauses on adjustable- and fixed-rate loans, which are provisions
giving the institutions the right to declare a loan immediately due and payable
in the event the borrower sells or otherwise disposes of the real property
subject to the mortgage. Due-on-sale clauses are an important means of adjusting
the rate on existing fixed-rate mortgage loans to current market rates. WSFS
enforces due-on-sale clauses through foreclosure and other legal proceedings to
the extent available under applicable laws.
In addition to loans originated for its own portfolio, WSFS originates
nonconforming residential mortgage loans through its non wholly-owned
subsidiary, Wilmington National Finance, Inc. ("WNF"), for resale into the
secondary market on a servicing release, limited recourse basis. These loans are
originated to the underwriting guidelines of the various investors to which WNF
sells its loans, and such loans are typically sold to investors within 15 to 45
days of origination.
The mortgage loans that WNF originates are fully amortizing, fixed or
adjustable rate, first or second lien mortgage loans on one-to four-family
residential properties with loan-to-value ratios up to 100% and contractual
terms of 10 to 30 years. With respect to each property securing a mortgage loan,
the underwriting guidelines require among other things, title insurance, fire
and extended coverage casualty insurance, and a full appraisal by an independent
appraisers selected and reviewed by WNF. The majority of adjustable rate
mortgage loans are originated by WNF are indexed to the six month London
Interbank Offered Rate (LIBOR) and have rates that adjust every 6 months after a
initial fixed rate period of 24 to 36 months, with the adjustments limited to
two percentage at any adjustment date and six percentage points over the live of
the loan.
In general, loans are sold without recourse except for the repurchase
arising from standard contract provisions covering violation of representations
and warranties or, under certain investor contracts a default by borrower on the
first payment due to the investor. The Company also has 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, with such
recourse limited to a pro rata portion of the premium paid by the investor for
that loan less any prepayment penalty collectible from the borrower.
Commercial Real Estate, Construction and Commercial Lending.
Federal savings banks, are generally permitted to invest up to 400% of
their total regulatory capital in nonresidential real estate loans and up to 20%
of its assets in commercial loans. As a federal savings bank which was formerly
chartered as a Delaware savings bank, however, WSFS has certain additional
lending authority.
WSFS offers commercial real estate mortgage loans on multi-family and other
commercial real estate. Generally, loan-to-value ratios for such loans do not
exceed 80% of appraised value at origination.
-10-
WSFS offers commercial construction loans to developers. In some cases
these loans are made as "construction/permanent" loans, which provides for
disbursement of loan funds during construction and automatic conversion to
mini-permanent loans (1-5 years) upon completion of construction. Such
construction loans are made on a short-term basis, usually not exceeding two
years, with interest rates indexed to the WSFS prime rate, in most cases, and
adjusted periodically as WSFS' prime rate changes. 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. These items are used, prior to approval of the credit, as a
basis to determine the appraised value of the subject property when completed.
Policy requires that all appraisals are to be reviewed independently of the
commercial lending area. Generally, the loan-to-value ratio for construction
loans does not exceed 75%. The initial interest rate on the permanent portion of
the financing is determined based upon the prevailing market rate at the time of
conversion to the permanent loan. At December 31, 2000, $61.5 million was
committed for construction loans, of which $29.3 million had been disbursed.
WSFS' commercial lending, excluding real estate loans, includes loans for
the purpose of financing equipment acquisitions, expansion, working capital and
other business purposes. These loans generally range in amounts up to
approximately $5.0 million, and their terms range from less than one year to
seven years. The loans generally carry variable interest rates indexed to WSFS'
prime rate or LIBOR at the time of closing. WSFS intends to continue originating
commercial loans to small businesses in its market area.
Commercial, commercial mortgages and construction lending entail
significant risk as compared with residential mortgage lending. These loans
typically involve larger loan balances concentrated in 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 thus may be subject to a
greater extent to adverse conditions in the commercial real estate market or in
the economy generally. The majority of WSFS' commercial and commercial real
estate loans is concentrated in Delaware and surrounding areas.
Construction loans involve risks attributable to the fact that loan funds
are advanced as the construction progresses. The valuation of the underlying
collateral can be difficult to quantify prior to the completion of the
construction due to uncertainties inherent in construction such as ever changing
construction costs, delays arising from labor or material shortages and other
unpredictable contingencies. WSFS attempts to mitigate these risks and plan for
these contingencies through additional analysis and monitoring of its
construction projects.
Federal law limits the extensions of credit to any one borrower to 15% of
unimpaired capital, or 25%, if the additional incremental 10% is secured by
readily marketable collateral having a market value that can be determined by
reliable and continually available pricing. A single large extension of credit
by WSFS would be limited by this 15% of capital restriction, except if the
extension of credit would be fully or partially secured by U.S. treasury
securities. 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. In April 1997, WSFS originated a $35.5
million loan to refinance an employee stock ownership plan ("ESOP") loan of a
company. Approximately 80% of the loan is secured by discounted U.S. treasury
securities. The portion of the loan that is secured by U.S. treasury securities
is exempt from the above lending limits. At December 31, 2000, no borrower had
collective outstandings exceeding the above limits.
Consumer Lending.
The primary consumer credit products of the Company are equity secured
installment loans and home equity lines of credit. At December 31, 2000, WSFS
had equity secured installment loans totaling $113.7 million, which represented
65% of consumer loans. With a home equity line of credit the borrower is granted
a line of credit up to 100% of the appraised value (net of any senior mortgages)
of the residence. This line of credit is secured by a mortgage on the borrower's
property and can be drawn upon at any time. At December 31, 2000, WSFS had
extended a total of $81.7 million in home equity lines of credit, of which $24.4
million had been drawn at the date. Home equity lines of credit potentially
offer federal income tax advantages (in certain circumstances the interest paid
on a home equity loan can be deductible) and the convenience of checkbook access
as well as revolving credit features. Over the past few years, however, home
equity lines of credit have decreased as low interest rates offered on first and
second mortgage loans have enabled consumers to refinance their mortgages and
consolidate debt. Although home equity lines of credit expose the Company to the
risk that falling collateral values may leave it inadequately secured, the
Company has not had any significant adverse experience to date.
-11-
The table below sets forth consumer loans by type, in dollar amounts and
percentages, at the dates indicated.
December 31,
---------------------------------------------------------------------------
2000 1999 1998
-------------------- ----------------------- ----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars In Thousands)
Equity secured installment loans .............. $113,687 64.8% $ 97,491 63.0% $ 87,503 61.9%
Home equity lines of credit.................... 24,408 13.9% 26,446 17.1% 27,799 19.7%
Automobile..................................... 9,762 5.6% 9,800 6.3% 8,307 5.9%
Unsecured lines of credit...................... 16,739 9.6% 11,370 7.3% 10,444 7.4%
Other.......................................... 10,673 6.1% 9,750 6.3% 7,185 5.1%
--------- ----- -------- ----- -------- -----
Total consumer loans .......................... $ 175,269 100.0% $154,857 100.0% $141,238 100.0%
========= ===== ======== ===== ======== =====
[RESTUBBED]
December 31,
------------------------------------------------
1997 1996
--------------------- ----------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars In Thousands)
Equity secured installment loans .............. $ 78,975 60.7% $ 63,803 57.1%
Home equity lines of credit.................... 31,110 23.9% 33,267 29.8%
Automobile..................................... 3,596 2.8% 2,519 2.3%
Unsecured lines of credit...................... 9,466 7.3% 7,448 6.7%
Other.......................................... 6,922 5.3% 4,578 4.1%
-------- ----- -------- -----
Total consumer loans .......................... $130,069 100.0% $111,615 100.0%
======== ===== ======== =====
-12-
Loan Originations, Purchase and Sales.
WSFS has traditionally engaged in lending activities primarily in Delaware
and contiguous areas of neighboring states although, as a federal savings bank,
WSFS may originate, purchase and sell loans throughout the United States. WSFS
has also purchased limited amounts of loans from outside its normal lending area
when such purchases are deemed appropriate and consistent with WSFS' overall
practices. WSFS originates fixed-rate and adjustable-rate residential real
estate loans through banking offices. In addition, for the purpose of
originating loans, WSFS has established relationships with correspondent banks
and mortgage brokers.
During 2000, the Company originated $196 million of residential real estate
loans, of which $124 million were from WNF compared to 1999 originations of $110
million in total. From time to time, WSFS has purchased whole loans and loan
participations in accordance with its ongoing asset and liability management
objectives. In addition, increases in residential real estate loans from
correspondents and brokers primarily in the mid-atlantic region of the United
States totaled $37 million for the year ended December 31, 2000, $75 million for
1999 and $10 million for 1998. Residential real estate loan sales totaled $145
million in 2000, $29 million in 1999 and $75 million in 1998. While WSFS
generally intends to hold loans for the foreseeable future, WSFS, beginning in
1989, has undertaken to sell newly originated fixed-rate mortgage loans in the
secondary market to control the interest sensitivity of its balance sheet.
During the second half of 1993 the Corporation began to hold for investment
certain of its fixed-rate mortgage loans, with terms under 30 years, consistent
with current asset/liability management strategies.
WSFS serviced for others approximately $244 million of residential loans at
December 31, 2000 compared to $236 million at December 31, 1999. The Company
also services residential loans for its portfolio totaling $372 million and $357
million at December 31, 2000 and 1999.
WSFS originates commercial real estate and commercial loans through WSFS'
commercial lending department. Commercial loans are made for the purpose of
financing equipment acquisitions, expansion, working capital and other business
purposes and also include business loans secured by nonresidential real estate.
During 2000, WSFS originated $144 million of commercial and commercial real
estate loans compared to $125 million in 1999. These amounts represent gross
contract amounts and do not reflect amounts outstanding on such loans.
WSFS' consumer lending is conducted primarily through the branch offices.
WSFS originates a variety of consumer credit products, including home
improvement loans, home equity lines of credit, automobile loans, credit cards,
unsecured lines of credit and other secured and unsecured personal installment
loans. During 2000, such consumer loan originations aggregated $106 million
compared to $94 million in 1999. See "Consumer Lending" for a further discussion
regarding consumer loan originations.
All loans to one borrower exceeding $1.0 million in aggregate must be
approved by a management loan committee. Minutes of the management loan
committee meetings and individual loans exceeding $3.0 million approved by the
management loan committee are subsequently reviewed by the Executive Committee
and Board of Directors of WSFS, with separate approval needed for all loans to
any borrower who has direct or indirect outstanding commitments in excess of
$3.0 million or for any additional advances or extensions on loans previously
classified by WSFS' regulatory authorities or WSFS' Risk Management Department.
Officers of WSFS have authority to approve smaller loans in graduated amounts,
depending upon their experience and management position.
Fee Income from Lending Activities.
WSFS realizes interest and loan fee income from lending activities,
including fees for originating loans and for servicing loans and loan
participations sold. The institution also receive commitment fees for making
commitments to originate construction, residential and commercial real estate
loans. Additionally, loan fees related to existing loans are received, which
include prepayment charges, late charges and assumption fees.
WSFS offers a range of loan commitments for which fees are charged
depending on lengths of the commitment periods. As part of the loan application,
the borrower in some instances, also pays WSFS for out-of-pocket costs in
reviewing the application, whether or not the loan is closed. The interest rate
charged on the mortgage loan is normally the prevailing rate at the time the
loan application is approved.
-13-
Loan fees that are considered adjustments of yield in accordance with
generally accepted accounting principles are reflected in interest income and
represented an immaterial amount of interest income during the three years ended
December 31, 2000. Loan fees other than those considered adjustments of yield
are reported as loan fee income, a component of other income.
All fee income on loans originated by WNF for sale to third party
investors, which includes origination fees and discount points collected from
borrowers and sales premiums paid by investors, are recognized in total upon
sale of the loans to the third party investors (less adequate provision for
recourse obligations).
LOAN LOSS EXPERIENCE, PROBLEM ASSETS AND DELINQUENCIES
The Company's results of operations can be negatively impacted by
nonperforming assets, which include nonaccruing loans, nonperforming real estate
investments and assets acquired through foreclosure. Nonaccruing loans are those
on which the accrual of interest has ceased. Loans are placed on nonaccrual
status immediately if, in the opinion of management, collection is doubtful, or
when principal or interest is past due 90 days or more and collateral is
insufficient to cover principal and interest. Interest accrued, but not
collected at the date a loan is placed on nonaccrual status, is reversed and
charged against interest income. In addition, the amortization of net deferred
loan fees is suspended when a loan is placed on nonaccrual status. Subsequent
cash receipts are applied either to the outstanding principal balance or
recorded as interest income, depending on management's assessment of ultimate
collectibility of principal and interest.
The Company endeavors to manage its portfolios to identify problem loans as
promptly as possible and take actions immediately which will minimize losses. To
accomplish this, WSFS' Risk Management Department monitors the asset quality of
the Company's loan and investment in real estate portfolios and reports such
information to the Credit Policy Committee the Audit Committee of the Board of
Directors and the Controller's Department.
SUBSIDIARIES
The Corporation has two subsidiaries, Wilmington Savings Fund Society, FSB
(WSFS) and WSFS Capital Trust I. WSFS Capital Trust I was formed in 1998 to
issue Trust Preferred Securities. The Trust invested all of the proceeds from
the sale of the Trust Preferred Securities in Junior Subordinated Debentures of
the Corporation. The Corporation used the proceeds from the Junior Subordinated
Debentures for general corporate purposes, including the redemption of its 11%
Senior Notes due 2005 on December 31, 1998.
At December 31, 2000, WSFS had three wholly-owned, first-tier subsidiaries
which were engaged in leasing, insurance investment products, and securities
sales, as well as real estate development. WSFS is the sole investor in and
primary lender to its non-bank subsidiaries. At December 31, 2000, it had $224.1
million invested in the equity of these companies and had lent them an
additional $23.0 million.
WSFS Credit Corporation (WCC) which commenced operations in 1974, provides
leasing for consumer and business motor vehicles and equipment as well as
consumer loans. Prior to 1988, its business had been concentrated in the
northern Delaware area, but in 1988 it began expanding its motor vehicle leasing
base by originating leases through automobile dealerships in Pennsylvania, New
Jersey and Maryland as well as Delaware. In 1996 WCC expanded its market area to
parts of western Maryland and West Virginia. WCC underwrites all leases
originated through automobile dealers in accordance with underwriting criteria
generally consistent with those of WSFS and the leasing industry.
-14-
On December 21, 2000, the Board of Directors of the Corporation approved
plans to discontinue the operations of WCC, as a result, the Company has exited
the indirect auto leasing business. WCC, which had 7,300 lease contracts and
2,700 loan contracts at December 31, 2000, no longer accepts new applications
but will continue to service its existing loans and leases. Management estimates
that substantially all loan and lease contracts will mature by December 2003. As
discussed in Note 2 of the Financial Statements, the results of WCC are
presented as discontinued operations, retroactively restated for all periods
presented.
838 Investment Group, Inc. was formed in 1989. This subsidiary markets
various investment and insurance products, such as single-premium annuities and
whole life policies, and securities to Bank customers primarily through WSFS'
branch system.
Star States Development Company was formed in March 1985 with the objective
of engaging in residential real estate projects through either wholly-owned
subsidiaries or investments in joint ventures. Star States Development Company's
investments in the projects were in the form of nonrecourse, first mortgage
loans, in return for which Star States Development Company was entitled to
receive repayment of principal and interest, and to share, at an agreed upon
percentage, in the profits of the project. In 1998, Star States Development
Company sold its remaining parcel of land and is currently inactive.
Providential Home Income Plan, Inc. (Providential) was a San
Francisco-based reverse mortgage lender. WSFS acquired Providential in November
1994 for approximately $24.4 million. The acquisition was accounted for by the
purchase method of accounting; accordingly, Providential's results are included
in the Corporation's consolidated statement of operations for the period in
which it is owned. The management and operations of Providential were merged
into WSFS in November 1996.
In August 1999, the Corporation invested $5.5 million in CustomerOne
Financial Network, Inc (C1FN), a St. Louis, Missouri based corporation formed in
1998 for the express purpose of providing direct-to-consumer marketing,
servicing, Internet development and technology management for "branchless"
financial services. As a result of this investment, C1FN's Internet-only banking
structure became part of everbank.com(TM), a division of WSFS. C1FN assists in
managing the operations of everbank.com(TM). everbank.com(TM) began marketing
internet-only banking to a national clientele in November of 1999.
WSFS is the single largest shareholder in C1FN, has majority control
through a voting trust and, for the year ended December 31, 2000 WSFS shared in
42% of the operating results of C1FN. In addition, WSFS holds warrants for the
purchase of 20% additional ownership of C1FN, as well as the option and under
certain circumstances the obligation to invest an additional $5.4 million in the
year 2000, at the original WSFS ownership prices. This option expired on July 5,
2000 with no additional investment being made by WSFS.
On December 29, 2000, C1FN received a $5.0 million investment from a third
party investor, with a conditional commitment to invest an additional $12.5
million if and when a separate bank charter is obtained for everbank.com(TM).
This investment effectively reduces WSFS' economic ownership of C1FN at December
31, 2000 from 42% to 29%. Since WSFS retains majority control of C1FN through a
voting trust, the results of C1FN will continue to be consolidated into the
operating results of WSFS until everbank.com(TM) obtains a separate banking
charter.
Additionally, in November 1999, the Corporation expanded the local retail
home equity lending business of Community Credit Corporation (CCC) which
initially started operations in 1994. CCC was renamed Wilmington National
Finance, Inc. (WNF) which expanded its sales to a national level and now
aggregates loans primarily through brokers and sells them to investors. WSFS
retained a 51% ownership with the remainder held by WNF's executives retained to
lead the expansion of WNF. WSFS also has warrants to obtain an additional 15%
ownership in WNF. Both C1FN and WNF are consolidated into the financial
statements of the Corporation. See Note 19 of the Financial Statements,
"Investments in Non-wholly Owned Subsidiaries", for further discussion.
Both C1FN and WNF are consolidated into the Financial Statements of WSFS
Financial Corporation. The portion of equity and operating results attributable
to investors in C1FN and WNF other than WSFS are reported as minority interest.
-15-
SOURCES OF FUNDS
WSFS funds operations through retail and wholesale deposit growth as well
as through various borrowing sources, including repurchase agreements, federal
funds purchased and advances from the Federal Home Loan Bank (FHLB) of
Pittsburgh. Loan repayments and investment maturities also provide sources of
funds. Loan repayments and investment maturities provide a relatively stable
source of funds while certain deposit flows tend to be more susceptible to
market conditions. Borrowings are used to fund wholesale asset growth,
short-term funding of lending activities when loan demand exceeds projections,
or when deposit inflows or outflows are less than or greater than expected. On a
long-term basis, borrowings may be used to match against specific loans or
support business expansion.
Deposits. WSFS offers various deposit programs to its customers, including
savings accounts, demand deposits, interest-bearing demand deposits, money
market deposit accounts and certificates of deposits. WSFS also offers Christmas
clubs, Individual Retirement Accounts and Keogh Accounts. In addition, WSFS
accepts negotiable rate certificates with balances in excess of $100,000 from
individuals, businesses and municipalities in Delaware.
WSFS is the second largest independent full service banking institution
headquartered and operating in Delaware. It primarily attracts deposits through
its system of 28 branches. Eighteen of these branches are located in northern
Delaware's New Castle County, WSFS' primary market. These branches maintain
approximately 131,000 total account relationships with approximately 54,200
total households, or 28% of all households in New Castle County, Delaware. The
nineteenth branch is in the state capital, Dover, located in central Delaware's
Kent County. The nine remaining branches are located in southeastern
Pennsylvania.
everbank.com(TM), a division of WSFS, jointly managed with C1FN, a
nonwholly owned subsidiary of WSFS, garners deposits nationally through its
Internet banking operations. everbank.com(TM) offers demand deposits, money
market deposits and certificates of deposits as well as nondollar denominated
deposits. Total deposts at everbankTM were $183.2 million at December 31, 2000.
-16-
The following table sets forth the amount of certificates of deposit of
$100,000 or more by time remaining until maturity at the period indicated.
December 31,
Maturity Period 2000
- --------------- -------------
(In Thousands)
Less than 3 months...................... $19,181
Over 3 months to 6 months............... 8,834
Over 6 months to 12 months.............. 13,377
Over 12 months.......................... 8,281
-------
$49,673
=======
Borrowings. The Company utilizes several sources of borrowings to fund
operations. As a member of the FHLB of Pittsburgh, WSFS is authorized to apply
for advances on the security of their capital stock in the FHLB and certain of
their residential mortgages and other assets (principally securities which are
obligations of or guaranteed by the United States Government), provided certain
standards related to creditworthiness have been met. As a member institution,
WSFS is required to hold capital stock in the FHLB of Pittsburgh in an amount at
least equal to 1% of the aggregate unpaid principal of their home mortgage
loans, home purchase contracts, and similar obligations at the beginning of each
year, or 5% of their outstanding advances, whichever is greater.
WSFS also sells securities under agreements to repurchase with various
brokers as an additional source of funding. When entering into these
transactions, WSFS is generally required to pledge either government securities
or mortgage-backed securities as collateral for the borrowings.
In 1998, the Company issued $50.0 million in Trust Preferred securities due
December 11, 2028, part of the proceeds of which was used to pay off the $29.1
million in 11% Senior Notes. See Note 9 of the Consolidated Financial Statements
for a further discussion of the Trust Preferred securities.
REGULATION
Regulation of the Company
General. The Company is a registered savings and loan holding company and
is subject to Office of Thrift Supervision (OTS) regulation, examination,
supervision and reporting requirements. As a subsidiary of a holding company,
WSFS is subject to certain restrictions in its dealings with the Company and
other affiliates.
Activities Restrictions. Because the Company became a unitary savings and
loan holding company prior to May 4, 1999, there generally are no restrictions
on its activities. If the Company were to acquire another thrift and operate it
as a separate entity, it would become subject to the activities restrictions on
multiple holding companies. Among other things, no multiple savings and loan
holding company or subsidiary thereof which is not a savings association may
commence, or continue after a limited period of time after becoming a multiple
savings and loan holding company or subsidiary thereof, any business activity
other than: (i) furnishing or performing management services for a subsidiary
savings association; (ii) conducting an insurance agency or escrow business;
(iii) holding, managing, or liquidating assets owned by or acquired from a
subsidiary savings institution; (iv) holding or managing properties used or
occupied by a subsidiary savings institution; (v) acting as trustee under deeds
of trust; (vi) those activities authorized by regulation as of March 5, 1987 to
be engaged in by multiple holding companies; or (vii) unless the Director of OTS
by regulation prohibits or limits such activities for savings and loan holding
companies, those activities authorized by the Federal Reserve Board as
permissible for bank holding companies. Those activities described in (vii)
above also must be approved by the Director of OTS prior to being engaged in by
a multiple savings and loan holding company.
-17-
Transactions with Affiliates; Tying Arrangements. Transactions between
savings associations and any affiliate are governed by Sections 23A and 23B of
the Federal Reserve Act. An affiliate of a savings association is any company or
entity which controls or is under common control with the savings association or
any subsidiary of the savings association that would be deemed a financial
subsidiary of a national bank. 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 similar types of transactions.
In addition to the restrictions imposed by Sections 23A and 23B, no savings
association may (i) lend or otherwise extend credit to an affiliate, except for
any affiliate which engages only in activities which are permissible for bank
holding companies, or (ii) purchase or invest in any stocks, bonds, debentures,
notes or similar obligations of any affiliate, except for affiliates which are
subsidiaries of the savings association. Savings associations are also
prohibited from extending credit, offering services, or fixing or varying the
consideration for any extension of credit or service on the condition that the
customer obtain some additional service from the institution or certain of its
affiliates or that the customer not obtain services from a competitor of the
institution, subject to certain limited exceptions.
Restrictions on Acquisitions. Unless the acquiror was a unitary savings and
loan holding company on May 4, 1999 (or became a unitary savings and loan
holding company pursuant to an application pending as of that date), no company
may acquire control of the Company unless the company is only engaged in
activities that are permitted for multiple savings and loan holding companies or
for financial holding companies under the Bank Holding Company Act of 1956 as
amended by the Gramm-Leach-Bliley Act (See "Financial Modernization
Legislation"). Financial holding companies may engage in activities that the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
in consultation with the Secretary of the Treasury, has determined to be
financial in nature or incidental to a financial activity or complementary to a
financial activity provided that the complementary activity does not pose a risk
to safety and soundness. Financial holding companies that were not previously
bank holding companies may continue to engage in limited non-financial
activities for up to ten years after the effective date of the
Gramm-Leach-Bliley Act (with provision for extension for up to five additional
years by the Federal Reserve Board) provided that the financial holding company
is predominantly engaged in financial activities.
Savings and loan holding companies are prohibited from acquiring, without
prior approval of the Director of OTS, (i) control of any other savings
association or savings and loan holding company or substantially all the assets
thereof, or (ii) more than 5% of the voting shares of a savings association or
holding company thereof which is not a subsidiary. Under certain circumstances,
a savings and loan holding company is permitted to acquire, with the approval of
the Director of OTS, up to 15% of the voting shares of an under-capitalized
savings association pursuant to a "qualified stock issuance" without that
savings association being deemed controlled by the holding company. Except with
the prior approval of the Director of OTS, no director or officer of a savings
and loan holding company or person owning or controlling by proxy or otherwise
more than 25% of such company's stock, may also acquire control of any savings
association, other than a subsidiary savings association, or of any other
savings and loan holding company.
The Director of OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state if: (i) the company involved controls a
savings institution which operated a home or branch office in the state of the
association to be acquired as of March 5, 1987; (ii) the acquirer is authorized
to acquire control of the savings association pursuant to the emergency
acquisition provisions of the Federal Deposit Insurance Act; or (iii) the
statutes of the state in which the association to be acquired is located
specifically permit institutions to be acquired by state-chartered associations
or savings and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such state-chartered
savings institutions). The laws of Delaware do not specifically authorize
out-of-state savings associations or their holding companies to acquire
Delaware-chartered savings associations.
-18-
The statutory restrictions on the formation of interstate multiple holding
companies would not prevent WSFS from entering into other states by mergers or
branching. OTS regulations permit federal associations to branch in any state or
states of the United States and its territories. Except in supervisory cases or
when interstate branching is otherwise permitted by state law or other statutory
provision, a federal association may not establish an out-of-state branch unless
the federal association qualifies as a "domestic building and loan association"
under Section.7701(a)(19) of the Internal Revenue Code or as a "qualified thrift
lender" under the Home Owners' Loan Act and the total assets attributable to all
branches of the association in the state would qualify such branches taken as a
whole for treatment as a domestic building and loan association or qualified
thrift lender. Federal associations generally may not establish new branches
unless the association meets or exceeds minimum regulatory capital requirements.
The OTS will also consider the association's record of compliance with the
Community Reinvestment Act of 1977 in connection with any branch application.
Regulation of WSFS
General. As a federally chartered savings institution, WSFS is subject to
extensive regulation by the OTS. The lending activities and other investments of
WSFS must comply with various federal regulatory requirements. The OTS
periodically examines WSFS for compliance with regulatory requirements. The FDIC
also has the authority to conduct special examinations of WSFS as the insurer of
deposits. WSFS must file reports with OTS describing its activities and
financial condition. WSFS is also subject to certain reserve requirements
promulgated by the Federal Reserve Board. This supervision and regulation is
intended primarily for the protection of depositors. Certain of these regulatory
requirements are referred to below or appear elsewhere herein.
Regulatory Capital Requirements. Under OTS capital regulations, savings
institutions must maintain "tangible" capital equal to 1.5% of adjusted total
assets, "Tier 1" or "core" capital equal to 4% of adjusted total assets (or 3%
if the institution is rated composite 1 under the OTS examiner rating system),
and "total" capital (a combination of core and "supplementary" capital) equal to
8% of risk-weighted assets. In addition, OTS regulations impose certain
restrictions on savings associations that have a total risk-based capital ratio
that is less than 8.0%, a ratio of Tier 1 capital to risk-weighted assets of
less than 4.0% or a ratio of Tier 1 capital to adjusted total assets of less
than 4.0% (or 3.0% if the institution is rated Composite 1 under the OTS
examination rating system). For purposes of these regulations, Tier 1 capital
has the same definition as core capital.
The OTS capital rule defines Tier 1 or core capital as common stockholders'
equity (including retained earnings), noncumulative perpetual preferred stock
and related surplus, minority interests in the equity accounts of fully
consolidated subsidiaries, certain nonwithdrawable accounts and pledged deposits
of mutual institutions and "qualifying supervisory goodwill," less intangible
assets other than certain supervisory goodwill and, subject to certain
limitations, mortgage and non-mortgage servicing rights and purchased credit
card relationships. Tangible capital is given the same definition as core
capital but does not include qualifying supervisory goodwill and is reduced by
the amount of all the savings institution's intangible assets except for limited
amounts of mortgage servicing rights. The OTS capital rule requires that core
and tangible capital be reduced by an amount equal to a savings institution's
debt and equity investments in "nonincludable" 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.
Adjusted total assets for purposes of the core and tangible capital
requirements are a savings institution's total assets as determined under
generally accepted accounting principles, increased by certain goodwill amounts
and by a prorated portion of the assets of unconsolidated includable
subsidiaries in which the savings institution holds a minority interest.
Adjusted total assets are reduced by the amount of assets that have been
deducted from capital, the savings institution's minority investments in
unconsolidated includable subsidiaries and, for purposes of the core capital
requirement, qualifying supervisory goodwill. At December 31, 2000, WSFS was in
compliance with both the core and tangible capital requirements.
-19-
The risk-based capital requirement is measured against risk-weighted
assets, which equal the sum of each on-balance-sheet asset and the
credit-equivalent amount of each off-balance-sheet item after being multiplied
by an assigned risk weight. Under the OTS risk-weighting system, cash and
securities backed by the full faith and credit of the U.S. government are given
a 0% risk weight. Mortgage-backed securities that qualify under the Secondary
Mortgage Enhancement Act, including those issued, or fully guaranteed as to
principal and interest, by the FNMA or FHLMC, are assigned a 20% risk weight.
Single-family first mortgages not more than 90 days past due with loan-to-value
ratios not exceeding 80%, fixed-rate multi-family first mortgages not more than
90 days past due with loan-to-value ratios not exceeding 80% (75% if rate is
adjustable), and annual net operating income equal to not less than 120% of debt
service (115% if loan is adjustable) and certain qualifying loans for the
construction of one- to four-family residences pre-sold to home purchasers are
assigned a risk weight of 50%. Consumer loans, non-qualifying residential
construction loans and commercial real estate loans, repossessed assets and
assets more than 90 days past due, as well as all other assets not specifically
categorized, are assigned a risk weight of 100%. The portion of equity
investments not deducted from core or supplementary capital is assigned a 100%
risk-weight.
In determining compliance with the risk-based capital requirement, a
savings institution is allowed to 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, nonwithdrawable
accounts and pledged deposits that do not qualify as core capital, certain
approved subordinated debt, certain other capital instruments and a portion of
the savings institution's general loan loss allowances. The OTS risk-based
capital standards require savings institutions with more than a "normal" level
of interest rate risk to maintain additional total capital. A savings
institution's interest rate risk is measured in terms of the sensitivity of its
"net portfolio value" to changes in interest rates. A savings association with
more than normal interest rate risk is required to deduct an interest rate risk
component equal to one-half of the excess of its measured interest rate risk
over the normal level from its total capital for purposes of determining its
compliance with the OTS risk-based capital guidelines. At December 31, 2000,
WSFS was in compliance with the OTS risk-based capital requirements.
Loans to Directors, Officers and 10% Stockholders. Under Section 22(h) of
the Federal Reserve Act, loans to an executive officer or director or to a
greater than 10% stockholder of a savings association and certain affiliated
interests of either, may not exceed, together with all other outstanding loans
to such person and affiliated interests, the association's loans to one borrower
limit (generally equal to 15% of the institution's unimpaired capital and
surplus) and all loans to all such persons may not exceed the institution's
unimpaired capital and unimpaired surplus. Section 22(h) also prohibits loans,
above amounts prescribed by the appropriate federal banking agency, to
directors, executive officers and greater than 10% stockholders of a savings
association, and their respective affiliates, unless such loan is approved in
advance by a majority of the board of directors of the association with any
"interested" director not participating in the voting. The Federal Reserve Board
has prescribed the loan amount (which includes all other outstanding loans to
such person), as to which such prior board of director approval if required, as
being the greater of $25,000 or 5% of capital and surplus (up to $500,000).
Further, loans to directors, executive officers and principal stockholders must
be made on terms substantially the same as offered in comparable transactions to
other persons unless the loan is made pursuant to a compensation or benefit plan
that is widely available to employees and does not discriminate in favor of
insiders. Section 22(h) also prohibits a depository institution from paying the
overdrafts of any of its executive officers or directors. Savings associations
are subject to the requirements and restrictions of Section 22(g) of the Federal
Reserve Act which requires that loans to executive officers of depository
institutions not be made on terms more favorable than those afforded to other
borrowers, requires approval for such extensions of credit by the board of
directors of the institution, and imposes reporting requirements for and
additional restrictions on the type, amount and terms of credits to such
officers. Section 106 of the Bank Holding Company Act of 1956 (BHCA) prohibits
extensions of credit to executive officers, directors, and greater than 10%
stockholders of a depository institution by any other institution which has a
correspondent banking relationship with the institution, unless such extension
of credit is on substantially the same terms as those prevailing at the time for
comparable transactions with other persons and does not involve more than the
normal risk of repayment or present other unfavorable features.
Dividend Restrictions. Savings associations must submit notice to the OTS
prior to making a capital distribution (which includes cash dividends, stock
repurchases and payments to shareholders of another institution in a cash
merger) if (a) they would not be well capitalized after the distribution, (b)
the distribution would result in the retirement of any of the association's
common or preferred stock or debt counted as its regulatory capital, or (c) the
association is a subsidiary of a holding company. A savings association must
make application to the OTS to pay a capital distribution if (x) the association
would not be adequately capitalized following the distribution, (y) the
association's total distributions for the calendar year exceeds the
association's net income for the calendar year to date plus its net income (less
distributions) for the preceding two years, or (z) the distribution would
otherwise violate applicable law or regulation or an agreement with or condition
imposed by the OTS.
-20-
Deposit Insurance. WSFS may be charged semi-annual premiums by the FDIC for
federal insurance on its insurable deposit accounts up to applicable regulatory
limits. The FDIC may establish an assessment rate for deposit insurance premiums
which protects the insurance fund and considers the fund's operating expenses,
case resolution expenditures, income and effect of the assessment rate on the
earnings and capital of members.
The assessment rate for an insured depository institution depends on the
assessment risk classification assigned to the institution by the FDIC which is
determined by the institution's capital level and supervisory evaluations.
Institutions are assigned to one of three capital groups -- well-capitalized,
adequately-capitalized or undercapitalized -- using the same percentage criteria
as in the prompt corrective action regulations. See "Prompt Corrective Action."
Within each capital group, institutions will be assigned to one of three
subgroups on the basis of supervisory evaluations by the institution's primary
supervisory authority and such other information as the FDIC determines to be
relevant to the institution's financial condition and the risk posed to the
deposit insurance fund.
Because the Bank Insurance Fund (BIF) achieved its statutory reserve ratio
of 1.25% of insured deposits, the FDIC has eliminated deposit insurance premiums
for most BIF members. The FDIC, however, continues to assess BIF member
institutions to fund interest payments on certain bonds issued by the Financing
Corporation (FICO), an agency of the federal government established to help fund
takeovers of insolvent thrifts. Until December 31, 1999, BIF members were
assessed at approximately one-fifth the rate at which Savings Association
Insurance Fund (SAIF) members were assessed. After December 31, 1999, BIF and
SAIF members are being assessed at the same rate.
Prompt Corrective Action. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA), federal banking regulators are required to
take prompt corrective action if an institution fails to satisfy certain minimum
capital requirements, including a leverage limit, a risk-based capital
requirement, and any other measure deemed appropriate by the federal banking
regulators for measuring the capital adequacy of an insured depository
institution. All institutions, regardless of their capital levels, are
restricted from making any capital distribution or paying any management fees
that would cause the institution to become undercapitalized. An institution that
fails to meet the minimum level for any relevant capital measure (an
"undercapitalized institution") generally is: (i) subject to increased
monitoring by the appropriate federal banking regulator; (ii) required to submit
an acceptable capital restoration plan within 45 days; (iii) subject to asset
growth limits; and (iv) required to obtain prior regulatory approval for
acquisitions, branching and new lines of businesses. "Significantly
undercapitalized" institutions and their holding companies may become subject to
more severe sanctions including limitations on asset growth, restrictions on
capital distributions by the holding company and possible divestiture
requirements. Institutions generally must be placed in receivership within
specified periods of time after they become "critically undercapitalized".
Under the OTS regulations implementing the prompt corrective action
provisions of FDICIA, the OTS measures a savings institution's capital adequacy
on the basis of its total risk-based capital ratio (the ratio of its total
capital to risk-weighted assets), Tier 1 risk-based capital ratio (the ratio of
its core capital to risk-weighted assets) and leverage ratio (the ratio of its
core capital to adjusted total assets). A savings institution that is not
subject to an order or written directive to meet or maintain a specific capital
level is deemed "well capitalized" if it also has: (i) a total risk-based
capital ratio of 10% or greater; (ii) a Tier 1 risk-based capital ratio of 6.0%
or greater; and (iii) a leverage ratio of 5.0% or greater. An "adequately
capitalized" savings institution is a savings institution that does not meet the
definition of well capitalized and has: (i) a total risk-based capital ratio of
8.0% or greater; (ii) a Tier 1 capital risk-based ratio of 4.0% or greater; and
(iii) a leverage ratio of 4.0% or greater (or 3.0% or greater if the savings
institution has a composite 1 CAMELS rating). An "undercapitalized institution"
is a savings institution that has (i) a total risk-based capital ratio less than
8.0%; or (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a
leverage ratio of less than 4.0% (or 3.0% if the institution has a composite 1
CAMELS rating). A "significantly undercapitalized" institution is defined as a
savings institution that has: (i) a total risk-based capital ratio of less than
6.0%; or (ii) a Tier 1 risk-based capital ratio of less than 3.0%; or (iii) a
leverage ratio of less than 3.0%. A "critically undercapitalized" savings
institution is defined as a savings institution that has a ratio of tangible
equity to total assets of less than 2.0%.
-21-
Federal Home Loan Bank System. WSFS is a member of the FHLB System, which
consists of 12 district FHLBs subject to supervision and regulation by the
Federal Housing Finance Board (FHFB). The FHLBs provide a central credit
facility primarily for member institutions. As a member of the FHLB of
Pittsburgh, WSFS is required to acquire and hold shares of capital stock in the
FHLB of Pittsburgh in an amount at least equal to 1% of the aggregate unpaid
principal of its home mortgage loans, home purchase contracts, and similar
obligations at the beginning of each year, or 1/20 of its advances (borrowings)
from the FHLB of Pittsburgh, whichever is greater. WSFS was in compliance with
this requirement with an investment in FHLB of Pittsburgh stock at December 31,
2000, of $28.5 million. The FHLB of Pittsburgh offers advances to members in
accordance with policies and procedures established by the FHFB and the Board of
Directors of the FHLB of Pittsburgh. Long term advances may only be made to
larger institutions like WSFS for the purpose of providing funds for residential
housing finance.
Federal Reserve System. Pursuant to regulations of the Federal Reserve
Board, a savings institution must maintain average daily reserves equal to 3% on
the first $42.8 million of transaction accounts, plus 10% on the remainder. This
percentage is subject to adjustment by the Federal Reserve Board. Because
required reserves must be maintained in the form of vault cash or in a
non-interest bearing account at a Federal Reserve Bank, the effect of the
reserve requirement may be to reduce the amount of the institution's
interest-earning assets. As of December 31, 2000 WSFS met its reserve
requirements.
Financial Modernization Legislation
On November 12, 1999, President Clinton signed legislation which could have
a far-reaching impact on the financial services industry. The Gramm-Leach-Bliley
("G-L-B") Act authorizes affiliations between banking, securities and insurance
firms and authorizes bank holding companies and national banks to engage in a
variety of new financial activities. Among the new activities that will be
permitted to qualifying bank holding companies are securities and insurance
brokerage, securities underwriting, insurance underwriting and merchant banking.
The Federal Reserve Board, in consultation with the Department of Treasury, may
approve additional financial activities for bank holding companies. National
bank subsidiaries will be permitted to engage in similar financial activities
but only on an agency basis unless they are one of the 50 largest banks in the
country. National bank subsidiaries will be prohibited from insurance
underwriting, real estate development and, for at least five years, merchant
banking. The G-L-B Act prohibits future acquisitions of existing unitary savings
and loan holding companies, like the Company, and firms which are engaged in
commercial activities and limits the permissible activities of unitary holding
companies formed after May 4, 1999.
The G-L-B Act imposes new requirements on financial institutions with
respect to customer privacy. The G-L-B Act generally prohibits disclosure of
customer information to non-affiliated third parties unless the customer has
been given the opportunity to object and has not objected to such disclosure.
Financial institutions are further required to disclose their privacy policies
to customers annually. Financial institutions, however, will be required to
comply with state law if it is more protective of customer privacy than the
G-L-B Act. The G-L-B Act directs the federal banking agencies, the National
Credit Union Administration, the Secretary of the Treasury, the Securities and
Exchange Commission and the Federal Trade Commission, after consultation with
the National Association of Insurance Commissioners, to promulgate implementing
regulations within six months of enactment. The privacy regulations will become
final, effective in July 2001.
The G-L-B Act contains significant revisions to the Federal Home Loan Bank
System. The G-L-B Act imposes new capital requirements on the Federal Home Loan
Banks and authorizes them to issue two classes of stock with differing dividend
rates and redemption requirements. The G-I-B Act deletes the current requirement
that the Federal Home Loan Banks annually contribute $300 million to pay
interest on certain government obligations in favor of a 20% of net earnings
formula. The G-L-B Act expands the permissible uses of Federal Home Loan Bank
advances by community financial institutions (under $500 million in assets) to
include funding loans to small businesses, small farms and small
agri-businesses. The G-L-B Act makes membership in the Federal Home Loan Bank
voluntary for federal savings associations.
-22-
The G-L-B Act contains a variety of other provisions including a
prohibition against ATM surcharges unless the customer has first been provided
notice of the imposition and the amount of the fee. The G-L-B Act reduces the
frequency of Community Reinvestment Act examinations for smaller institutions
and imposes certain reporting requirements on depository institutions that make
payments to non-governmental entities in connection with the Community
Reinvestment Act. The G-L-B Act eliminates the SAIF special reserve and
authorizes a federal savings association that converts to a national or state
bank charter to continue to use the term "federal" in its name and to retain any
interstate branches.
The Company is unable to predict the impact of the G-L-B Act on its
operations at this time. Although the G-L-B Act reduces the range of companies
which may acquire control of the Company and with which the Company may
affiliate, it may facilitate affiliations with companies in the financial
services industry.
-23-
Item 2. Properties
The following table sets forth the location and certain additional
information regarding the Company's offices and other material properties at
December 31, 2000.
Net Book Value
Of Property
Owned/ Date Lease or Leasehold
Location Leased Expires Improvements(2) Deposits
- -------- ------ ---------- --------------- --------
(In Thousands)
-----------------------------------
WSFS:
Main Office (1)(2) Owned $1,253 $286,387
9th & Market Streets
Wilmington, DE 19899
Union Street Branch Leased 2003 101 55,283
3rd & Union Streets
Wilmington, DE 19805
Trolley Square Branch Leased 2001 9 23,635
1711 Delaware Avenue
Wilmington, DE 19806
Fairfax Shopping Center Branch Leased 2003 12 66,965
2005 Concord Pike
Wilmington, DE 19803
Branmar Plaza Shopping Center Branch Leased 2003 10 58,744
1812 Marsh Road
Wilmington, DE 19810
Prices Corner Shopping Center Branch Leased 2003 41 87,877
3202 Kirkwood Highway
Wilmington, DE 19808
Pike Creek Shopping Center Branch Leased 2005 19 58,420
New Linden Hill & Limestone Roads
Wilmington, DE 19808
University Plaza Shopping Center Branch Leased 2003 19 39,630
I-95 & Route 273
Newark, DE 19712
College Square Shopping Center Branch(4) Leased 2007 274 63,270
Route 273 & Liberty Avenue
Newark, DE 19711
Airport Plaza Shopping Center Branch Leased 2013 12 67,914
144 N. DuPont Hwy.
New Castle, DE 19720
Stanton Branch Leased 2001 169 8,612
Inside ShopRite at First State Plaza
1600 W. Newport Pike
Wilmington, DE 19804
Glasgow Branch Leased 2002 188 14,510
Inside Genuardi's at Peoples Plaza
Routes 40 & 896
Newark, DE 19804
Middletown Square Shopping Center Leased 2004 58 14,071
Inside Parkers Thriftway
701 N. Broad St.
Middletown, DE 19709
Dover Branch Leased 2005 129 13,743
Inside Metro Food Market
Rt 134 & White Oak Road
Dover, DE 19901
-24-
Net Book Value
Of Property
Owned/ Date Lease or Leasehold
Location Leased Expires Improvements(2) Deposits
- -------- ------ ---------- --------------- --------
(In Thousands)
-----------------------------------
WSFS:
WSFS (continued...):
Pottstown Branch Leased 2001 190 1,628
Inside Genuardi's Family Market
1400 North Charlotte St.
Pottstown, PA 19461
Royersford Branch Leased 2003 199 1,787
Inside Genuardi's Family Markets
Limerick Square
70 Buckwater Rd., Suite 211
Royersford, PA 19468
Glen Eagle Branch Leased 2003 259 4,803
Inside Genaurdi's Family Market
475 Glen Eagle Square
Glen Mills, PA 19342
University of Delaware-Trabant University Center Leased 2003 237 4,095
17 West Main Street
Newark, DE 19716
Brandywine Branch Leased 2004 221 16,506
Inside Genaurdi's Family Market
2522 Foulk Road
Wilmington, DE 19810
Wal-Mart Branch Leased 2004 273 2,004
Route 40 & Wilton Boulevard
New Castle, DE 19720
Chesterbrook Branch Leased 2004 201 2,538
Inside Genaurdi's Family Market
500 Chesterbrook Boulevard
Wayne, PA 19087
Kimberton Branch Leased 2004 217 2,101
Inside Genuardi's Family Market
Maple Lawn Shopping Center
542 Kimberton Road
Phoenixville, PA 19460
King of Prussia Branch Leased 2005 246 3,900
Inside Genuardi's Family Market
310 S. Henderson Road
King of Prussia, PA 19406
Operations Center Owned 1,079 N/A
2400 Philadelphia Pike
Wilmington, DE 19703
Longwood Branch Leased 2005 246 587
830 E. Baltimore Pike
E. Marlborough, PA 19348
Holly Oak Branch Leased 2005 192 19,184
Inside Superfresh
2105 Philadelphia Pike
Claymont, DE 19703
Elkins Park Branch Leased 2005 240 5,528
More Shopping Center
7300 Old York Road
Elkins Park, PA 19027
Hockessin Branch Leased 2015 623 13,885
7450 Lancaster Pike
Wilmington, DE 19707
St. David's Branch Leased 2005 243 743
Inside Genuardi's Supermarket
550 E. Lancaster Ave.
Wayne, PA 19086
-25-
Net Book Value
Of Property
Owned/ Date Lease or Leasehold
Location Leased Expires Improvements(2) Deposits
- -------- ------ ---------- --------------- --------
(In Thousands)
-----------------------------------
WSFS:
Wilmington National Finance:
Marchwood Shopping Center Leased 2002 2 N/A
4 Marchwood Road
Exton, PA 19341
6265 Southfront Road Leased 2005 - N/A
Livermore, CA
1833 Centre Point Drive Leased 2005 - N/A
Suite 123
Naperville, IL 60566
Suite 350 Leased 2005 24 N/A
2260 Buler Pike
Plymouth Meeting, PA 19462
640 Ten Rod Road Leased 2001 - N/A
North Kingstown, RI
University Plaza-Bellevue Leased 2005 - N/A
262 Chapman Road
Newark, DE
Everbank.com(TM):
St. Louis, Missouri Leased 2002 - 183,241
555 N New Ballas Road
Suite 110
St. Louis, MO 63141
New York Leased 2003 - N/A
11 Oval Drive
Suite 107
Islandia, NY 11749-1476
Vermont Leased 2002 1 N/A
188 South Main Street
P.O. Box 1209
Stowe, VT 05672
Florida (5) Leased 2004 12 N/A
2233 N. Commerce Pkwy.
Suite 1
Weston, FL 33326
WSFS Credit Corporation:
30 Blue Hen Drive Leased 2002 255 N/A
Suite 200
Newark, DE 19713
Friess Land (3) Owned - 2,158 N/A
Wilmington Gateway:
500 Delaware Ave. Owned - 5,974 N/A
Wilmington, DE 19801
----------
$1,121,591
(1) Includes location of executive offices and approximately $147.1 million in
brokered deposits.
(2) The net book value of all the Company's investment in premises and
equipment totaled $16.8 million at December 31, 2000.
(3) The total includes building and building depreciation listed under Real
Estate Held for Investment.
(4) Includes the Company's Education and Development Center.
(5) Florida location is pending execution of a sublease by C1FN to an
independent third party at the same rental cost.
-26-
Item 3. Legal Proceedings
There are no material legal proceedings to which the Company or WSFS is a
party or to which any of its property is subject except as discussed in Note 14
to the Consolidated Financial Statements.
Item 4. Submissions of Matters To a Vote of Security Holders
No matter was submitted to a vote of the stockholders during the fourth
quarter of the fiscal year ended December 31, 2000 through the solicitation of
proxies or otherwise.
-27-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
WSFS Financial Corporation's Common Stock is traded on The Nasdaq Stock
MarketSM under the symbol WSFS. At December 31, 2000, the Corporation had 1,926
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 the common stock at December 31, 2000 was
$12 7/8.
Stock Price Range Dividends
----------------------------- ---------
Low High
--------- --------
2000 1st $10 11/16 $12 7/8 $ .03
2nd 10 1/4 13 5/16 .04
3rd 9 15/16 11 3/8 .04
4th 10 1/16 12 7/8 .04
-----
$ .15
=====
1999 1st $14 5/8 $17 3/8 $ .03
2nd 13 5/8 16 .03
3rd 13 7/8 15 3/8 .03
4th 11 7/8 15 1/4 .03
-----
$ .12
=====
-28-
Item 6. Selected Financial Data
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(Dollars in Thousands, Except Per Share Data)
At December 31,
Total assets..................................... $1,739,316 $1,751,037 $1,631,319 $1,510,655 $1,353,519
Net loans (1).................................... 963,491 860,573 739,462 734,716 695,991
Investment securities (2)........................ 29,740 37,473 37,861 78,655 18,933
Investment in reverse mortgages, net............. 33,683 28,103 31,293 32,109 35,796
Other investments................................ 39,318 36,526 51,418 74,523 47,337
Mortgage-backed securities (2)................... 339,718 447,749 459,084 330,274 365,252
Deposits ........................................ 1,121,591 910,090 858,300 766,966 744,886
Borrowings (3)................................... 443,638 672,465 622,409 615,578 489,819
Senior notes..................................... - - - 29,100 29,100
Trust Preferred Borrowings....................... 50,000 50,000 50,000 - -
Stockholders' equity ............................ 97,146 96,153 85,752 86,759 75,788
Number of full-service branches (4).............. 28 24 20 16 16
For the Year Ended December 31,
Interest income.................................. $ 129,677 $ 108,184 $ 105,833 $ 107,265 $ 96,266
Interest expense................................. 65,727 58,856 59,775 60,751 53,135
Other income .................................... 18,101 11,579 11,243 8,785 6,559
Other expenses .................................. 61,428 42,668 34,501 33,883 31,089
Income from continuing operations................ 15,622 18,086 15,388 14,979 15,222
Net income ...................................... 11,019 19,709 16,512 16,389 16,356
Earnings per share:
Basic:
Income from continuing operations............. 1.46 1.60 1.25 1.20 1.09
Net income ................................... 1.03 1.74 1.34 1.31 1.18
Diluted:
Income from continuing operations............. 1.46 1.59 1.23 1.18 1.08
Net income ................................... 1.03 1.73 1.32 1.29 1.16
Interest rate spread............................. 4.76% 3.90% 3.78% 3.78% 3.75%
Net interest margin.............................. 4.57 3.65 3.63 3.71 3.83
Return on average equity (5)..................... 15.95 20.32 16.47 18.51 19.72
Return on average assets (5)..................... 1.04 1.25 1.15 1.14 1.30
Average equity to average assets (5)............. 6.54 6.15 6.96 6.18 6.61
(1) Includes loans held-for-sale.
(2) Includes securities available-for-sale.
(3) Borrowings consist of FHLB advances, securities sold under agreement to
repurchase and municipal bond repurchase obligations. The municipal bond
repurchase obligation was called in 1996.
(4) WSFS opened two branches in 1996 and four branches in 1998, 1999 and 2000.
(5) Based on continuing operations.
-29-
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
GENERAL
WSFS Financial Corporation (Company or Corporation) is a thrift holding
company headquartered in Wilmington, Delaware. Substantially all of the
Corporation's assets are held by its subsidiary, Wilmington Savings Fund
Society, FSB (WSFS). Founded in 1832, WSFS is one of the oldest financial
institutions in the country. As a federal savings bank which was formerly
chartered as a state mutual savings bank, WSFS enjoys broader investment powers
than most other financial institutions. These grandfathered powers have allowed
WSFS to diversify its revenue sources to a greater extent than most savings
banks. WSFS has served the residents of the Delaware Valley for 169 years. WSFS
is the largest thrift institution headquartered in Delaware and among the four
largest financial institutions in the state on the basis of total deposits
traditionally garnered in-market. The Corporation's primary market area is the
Mid-Atlantic region of the United States which is characterized by a diversified
manufacturing and service economy. The long-term goal of the Corporation is to
maintain its high-performing financial services company status by focusing on
its core banking business while developing unique profitable niches in
complementary businesses which may operate outside WSFS' geographical footprint.
WSFS provides residential and commercial real estate, commercial and
consumer lending services, as well as cash management services funding these
activities primarily with retail deposits and borrowings. The banking operations
of WSFS are conducted from 28 retail banking offices located in northern
Delaware and southeastern Pennsylvania. Deposits are insured by the Federal
Deposit Insurance Corporation (FDIC).
Fully owned subsidiaries of WSFS include WSFS Credit Corporation (WCC),
which is engaged primarily in indirect motor vehicle leasing; and 838 Investment
Group, Inc., which markets various insurance products and securities through
WSFS' branch system. An additional subsidiary, Star States Development Company
(SSDC), is currently inactive having sold its final parcel of land in 1998.
On December 21, 2000, the Board of Directors of the Corporation
approved plans to discontinue the operations of WCC, and as a result, the
Company has exited the indirect auto leasing business. WCC, which had 7,300
lease contracts and 2,700 loan contracts at December 31, 2000, no longer accepts
new applications but will continue to service its existing loans and leases.
Management estimates that substantially all loan and lease contracts will mature
by December 2003. As discussed in Note 2 of the Financial Statements, the
results of WCC are presented as discontinued operations, retroactively restated
for all periods presented.
In August 1999, WSFS Financial Corporation invested $5.5 million in
CustomerOne Financial Network, Inc. (C1FN), a St.