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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, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to __________
Commission file number 0-16668
--------------------------------
WSFS FINANCIAL CORPORATION
--------------------------------
Delaware 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 prices of the registrant's common stock as
quoted on the National Association of Securities Dealers Automated Quotation
System as of March 15, 1996 was $67,170,429. For purposes of this calculation
only, affiliates are deemed to be directors, executive officers and certain
beneficial owners.
As of March 15, 1996, there were issued and outstanding 14,386,598 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 25, 1996 are incorporated by reference in Part
III hereof.
WSFS FINANCIAL CORPORATION
TABLE OF CONTENTS
Part I
Page
-----
Item 1. Business....................................................................... 3
Item 2. Properties..................................................................... 28
Item 3. Legal Proceedings.............................................................. 29
Item 4. Submission of Matters to a Vote of Security Holders............................ 29
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters..................................................................... 30
Item 6. Selected Financial Data........................................................ 31
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................... 32
Item 8. Financial Statements and Supplementary Data.................................... 50
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................................ 90
Part III
Item 10. Directors and Executive Officers of the Registrant............................. 90
Item 11. Executive Compensation......................................................... 90
Item 12. Security Ownership of Certain Beneficial Owners and Management................. 90
Item 13. Certain Relationships and Related Transactions................................. 90
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................ 91
Signatures................................................................................... 93
-2-
PART I
Item 1. Business
GENERAL
WSFS Financial Corporation ("Company" or "Corporation") is a thrift
holding company whose principal subsidiary is Wilmington Savings Fund Society,
FSB (the "Bank" or "WSFS") which operates 14 branches in the Wilmington and
Dover, Delaware area. Founded in 1832, the Bank is the largest thrift
institution headquartered in Delaware. Reflecting its long history, the Bank
estimates that it has customer relationships with almost 51,000 households, or
24%, in its principal market area of New Castle County, Delaware.
The Company has no business operations independent of WSFS and its
subsidiaries. Through WSFS and its subsidiaries, the Company is currently
engaged in a variety of lending services, including residential, consumer and
commercial lending primarily in Delaware. The principal business of the Bank
consist of the solicitation of deposits through its branch networks to provide
funds for lending and investment activities. In connection with its conversion
to a federal savings bank in 1983, the Bank retained its then-authorized powers
as a Delaware-chartered mutual savings bank. Under the Office of Thrift
Supervision ("OTS") regulations, the Bank may exercise any authority it was
allowed to exercise as a mutual savings bank under state laws and regulations at
the time of its conversion to a federal savings bank. In exercising such
"grandfathered" powers, the Bank may continue to comply with applicable state
laws and regulations in effect at the time of its conversion to a federal
charter except as otherwise determined by the OTS. The Bank, however, may not
use its grandfathered powers to engage in activities to a greater degree than
would be allowed under the most liberal construction of either state or federal
law or regulation. The Bank's grandfathered powers could be assumed by any other
institution that acquires the Bank by consolidation or merger. The Bank has
previously used its grandfathered powers to authorize investments above
otherwise applicable limits in subsidiaries engaged in activities such as real
estate and insurance brokerage. The Bank has divested certain of these
subsidiaries in order to focus on the traditional savings bank businesses of
lending to consumers and small businesses in its primary market area.
As a federally chartered savings institution, the Bank is subject to
extensive regulation by the OTS. The lending activities and other investments of
the Bank must comply with various federal regulatory requirements. The OTS
periodically examines the Bank for compliance with various regulatory
requirements. The FDIC also has the authority to conduct special examinations of
the Bank as insurer of its deposits. The Bank 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. See
"Regulation" for a further discussion of certain of these regulatory
requirements.
During the 1980's, the Bank pursued an aggressive growth and
diversification strategy acquiring the largest real estate brokerage business in
Delaware, B. Gary Scott, Inc. in 1985, a Maryland automobile fleet leasing
company, Anderson Leasing, Inc. in 1988 and Fidelity Federal Savings and Loan
Association ("Fidelity Federal" or "Association") in 1990. In addition, the Bank
significantly increased its exposure to commercial real estate, both as a lender
and as an equity participant through its real estate development subsidiary. As
a result of operating losses related to deterioration in the Company's loan
portfolios, real estate investments and acquisitions, the Bank failed to meet
certain regulatory capital requirements and the Board of Directors reorganized
management by terminating several executive officers and appointing a new
chairman of the board who was directed to head a search committee for new
management. The Company took a number of steps to address the asset quality and
capital problems that resulted from this previous business strategy.
-3-
Consistent with these goals, the Company undertook an extensive
restructuring during 1991. This included the sales of loans, investment
securities, mortgage servicing rights, certain real estate, subsidiary
operations and the deposit accounts of eight branches. These sales combined with
expense reduction initiatives resulted in net earnings of $11.3 million in 1991,
the highest in the Company's history at the time. During 1992 and 1993, the
Company's earnings stabilized as the economy began to improve and interest rates
decreased. In 1992, the Company completed an offering of convertible preferred
stock which increased capital by $11.8 million. Such funds were utilized to
recapitalize the Bank. In December 1993, the Company completed a private
placement of $32.0 million in 11% Senior Notes to provide funds for an
additional capital infusion into the Bank. As a result of this capital infusion,
the Bank was in compliance with all currently applicable capital requirements
and it was released from the Capital Directive on December 29, 1993. The Bank's
improved capital position has also allowed the Company to undertake an expansion
of its business activities. During 1994, the Bank formed a new consumer finance
subsidiary specializing in second mortgage lending and acquired Providential
Home Income Plan, Inc. an originator of reverse annuity mortgages. During 1994,
the Corporation reported operating income of $8.1 million, which was at that
time the highest operating earnings in the Corporation's history. Rising
interest rates combined with investment growth strategies contributed
significantly to earnings during 1994.
During 1995, the Corporation's subsidiary, Fidelity Federal, completed
the sale of its deposits and certain real estate of four branches which allowed
the Corporation to further focus on its primary market area and continue to
enhance capital. As a result, the Bank recognized a gain of $12.4 million, net
of taxes and a supplemental contribution to the Corporation's 401(k) Plan. The
Association's remaining operations were merged into the Bank in November 1995.
The Corporation recorded total earnings of $27.0 million in 1995 of which $14.6
million was from operations. Both amounts represent new record earnings levels
in the Corporation's 164-year history.
These continued improvements in income from operations are the results
of earnings and operational strategies the Corporation has undertaken over the
last several years. For these reasons, as well as the significant changes and
ongoing consolidation in the financial services industry, the Corporation's
Board of Directors selected a financial advisor to assist the Board in
considering strategic alternatives, including a possible sale of the
Corporation. On March 4, 1996, the Board of Directors announced its intention to
operate the Corporation as an independent financial institution.
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 ("MDA"), incorporated herein by reference.
-4-
INVESTMENT ACTIVITIES
The Bank is able to invest in various securities, including U.S.
Treasury obligations and securities of various government agencies, municipal
and state obligations, corporate debt obligations, short-term money market
instruments and preferred stock. The primary purposes of the Company's
short-term investment portfolio are 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,
-----------------------------------------------------------------------
1995 1994 1993
--------------------- --------------------- -------------------
Amount Percent Amount Percent Amount Percent
------ -------- ------- ------- ------ -------
(Dollars In Thousands)
Held-to-Maturity:
- -----------------
Corporate bonds......................... $ 16,748 1.4% $ 19,077 1.6% $ 23,054 2.3%
U.S. Government and agencies............ 10,000 0.9
State and political subdivisions........ 5,542 0.4 6,075 0.5 11,175 1.1
Other investments....................... 88 5,216 0.5
-------- ---- -------- --- -------- ---
22,378 1.8 35,152 3.0 39,445 3.9
-------- ---- -------- --- -------- ---
Available-for-Sale:
- -------------------
U.S. Government and agencies............ 23,028 1.9 14,901 1.5
State and Political subdivisions........ 891 0.1 761 0.1
Other investments....................... 5,503 0.4 5,203 0.4
-------- --- -------- --- ------ ---
6,394 0.5 28,992 2.4 14,901 1.5
-------- --- -------- --- ------ ---
Short-term investments:
- -----------------------
Federal funds sold and
securities purchased
under agreements to resell.......... 31,500 2.6 23,098 1.9 78,599 7.9
Interest-bearing deposits in
other banks (1)..................... 4,568 0.4 9,536 0.8 25,836 2.6
-------- --- -------- --- -------- ---
36,068 3.0 32,634 2.7 104,435 10.5
-------- --- -------- --- -------- ----
$ 64,840 5.3% $ 96,778 8.1% $158,781 15.9%
======== === ======== === ======== ====
(1) Interest-bearing deposits in other banks does not include deposits with a
maturity greater than one year.
During the 1980's, the Bank began restructuring its balance sheet to
reduce sensitivity to interest-rate fluctuations. Consequently, long-term
investment securities have gradually been reduced. In 1995, U.S. Government
securities available-for-sale were sold, and an FHLB step-up bond
(held-to-maturity) was called. The reduction of corporate and state and
political subdivision bonds were due to maturities and calls. In 1994, an FHLB
step-up bond was purchased in the amount of $10 million and U.S. Government
securities were purchased in the amount of $15 million. During 1993, the
corporate and municipal bond portfolios were reduced primarily as a result of
early redemptions or calls. Certain of the proceeds were reinvested into
treasury securities and also into a fund which invests in adjustable rate
mortgage-backed securities issued by governmental agencies.
The following table sets forth the terms to maturity and related
weighted average yields of investment securities and short-term investments at
December 31, 1995. Substantially all of the related interest and dividends
represent taxable income. Yields on tax-exempt obligations are calculated on the
basis of actual yields and not on a tax-equivalent basis.
-5-
At December 31, 1995
---------------------
Amount Yield
------ -----
(Dollars in Thousands)
Held-to-Maturity:
-----------------
Corporate bonds:
Within one year....................................................... $ 200 5.75%
After one but within five years....................................... 3,471 5.93
After five but within ten years....................................... 6,224 7.27
After ten years....................................................... 6,853 7.20
--------
16,748 6.94
--------
State and political subdivisions (1):
Within one year....................................................... 805 4.87
After one but within five years....................................... 4,688 4.97
After ten years....................................................... 49 6.75
--------
5,542 4.97
--------
Other................................................................... 88 6.55
--------
Total debt securities, held-to-maturity................................. 22,378 6.45
--------
Available-for-Sale:
-------------------
U.S. Government and agencies:
Within one year....................................................... 5,503 4.96
--------
State and political subdivisions (1):
After ten years....................................................... 891 5.35
--------
Total debt securities, available-for-sale............................... 6,394 5.01
--------
Short-term investments:
-----------------------
Deposits with other banks............................................. 4,568 5.65
Federal funds sold and securities
purchased under agreements to resell................................ 31,500 5.30
--------
36,068 5.34
--------
$ 64,840 6.23%
========
(1) Yields on state and political subdivisions are not calculated on a
tax-equivalent basis since substantially all bonds are taxable and
pledged to a municipal bond unit trust.
In addition to the foregoing investment securities, the Company has
maintained an investment portfolio of mortgage-backed securities. The portfolio
of CMO's decreased dramatically during 1993 as a result of the high rate of
prepayments of the underlying mortgages. Certain of these proceeds were utilized
to purchase approximately $22.1 million of GNMA mortgage-backed securities with
adjustable rates. These securities were classified as held-for-sale at December
31, 1993 and subsequently reclassified to available-for-sale in 1994 in
accordance with SFAS No. 115. During 1995, the reduction in the mortgage-backed
securities was 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,
---------------------------------------------------------------------
1995 1994 1993
--------------------- ------------------- -----------------
(Dollars in Thousands)
Stated Stated Stated
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
Held-to-Maturity:
- -----------------
Collateralized mortgage obligations........... $72,222 7.72% $ 78,847 7.82% $ 19,370 6.53%
GNMA.......................................... 1,718 7.11 1,941 6.40 2,276 6.74
FHLMC......................................... 73,197 6.22 81,864 6.28 536 5.01
FNMA.......................................... 72,590 6.30 81,513 6.34
-------- ---- -------- ---- -------- ----
.............................................. $219,727 6.75% $244,165 6.80% $ 22,182 6.52%
======== ==== ======== ==== ======== ====
Available-for-Sale:
- -------------------
GNMA.......................................... $ 17,405 6.44% $ 18,583 6.41% $ 21,568 4.68%
======== ==== ======== ==== ======== ====
LENDING ACTIVITIES
Traditionally, the majority of a 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 the Bank increased substantially. Consequently,
the Bank initiated a diversification strategy in fiscal year 1984 which included
a significant increase in commercial real estate lending. Commercial real estate
lending was discontinued in 1990 and only originations required by previous
funding commitments were made. In 1994, however; the Bank began to originate
small business commercial real estate loans in its primary market area. The
Bank's current lending activity is concentrated on lending to consumers and
small businesses in the Mid-Atlantic Region of the United States, which has
traditionally been the Bank's principal market area.
-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, 1995:
December 31,
-----------------------------------------------------------
1995 1994
------------------------ ----------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
Residential real estate (1).................. $276,926 35.0% $260,442 36.6%
Commercial real estate:
Commercial mortgage........................ 293,979 37.1 259,112 36.6
Construction............................... 29,959 3.8 25,603 3.6
--------- ----- -------- -----
Total commercial real estate............. 323,938 40.9 284,715 40.2
Commercial.................................. 23,894 3.0 25,188 3.5
Consumer.................................... 114,265 14.4 91,182 12.8
Lease financings............................ 98,840 12.5 89,095 12.5
--------- ------ -------- -----
Gross loans................................ 837,863 105.8 750,622 105.6
Less:
Unearned income............................ 21,512 2.7 18,146 2.6
Allowance for loan losses.................. 24,167 3.1 21,700 3.0
--------- ----- --------- -----
Net loans................................ $792,184 100.0% $710,776 100.0%
======== ===== ======== =====
December 31,
----------------------------------------------------------------------------
1993 1992 1991
------------------------ -------------------- --------------------
Amount Percent Amount Percent Amount Percent
------- ------- ------ ------- ------ -------
(Dollars in Thousands)
Residential real estate (1).................. $235,213 34.2% $254,936 33.4% $257,109 31.0%
Commercial real estate:
Commercial mortgage........................ 273,375 39.8 288,248 37.7 298,820 36.1
Construction............................... 28,978 4.2 40,528 5.3 56,915 6.9
-------- ----- --------- ----- --------- -----
Total commercial real estate............. 302,353 44.0 328,776 43.0 355,735 43.0
Commercial.................................. 21,276 3.0 33,891 4.4 41,487 5.0
Consumer.................................... 93,845 13.7 123,924 16.2 155,958 18.8
Lease financings............................ 72,941 10.6 61,750 8.1 58,516 7.1
-------- ----- --------- ----- --------- -----
Gross loans................................ 725,628 105.5 803,277 105.1 868,805 104.9
Less:
Unearned income............................ 14,523 2.1 13,215 1.7 13,239 1.6
Allowance for loan losses.................. 23,613 3.4 26,263 3.4 26,975 3.3
--------- ------ --------- ----- --------- -----
Net loans................................ $687,492 100.0% $763,799 100.0% $828,591 100.0%
======== ===== ======== ===== ======== =====
(1) Includes $4,401, $257, $1,965, $2,994 and $4,046 of residential mortgage
loans held-for-sale at December 31, 1995, 1994, 1993, 1992 and 1991,
respectively.
-8-
The following table sets forth information as of December 31, 1995
regarding the dollar amount of loans maturing in the Company's loan portfolio,
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)..................... $ 60,165 $205,512 $300,827 $566,504
Construction loans........................ 21,395 7,622 942 29,959
Commercial loans.......................... 10,217 10,708 2,969 23,894
Consumer loans............................ 55,081 36,336 22,848 114,265
Lease financings.......................... 21,998 76,842 -- 98,840
-------- -------- -------- --------
$168,856 $337,020 $327,586 $833,462
======== ======== ======== ========
Rate sensitivity:
Fixed................................... $ 51,158 $189,730 $ 88,229 $329,117
Adjustable.............................. 117,698 147,290 239,357 504,345
-------- -------- -------- --------
$168,856 $337,020 $327,586 $833,462
======== ======== ======== ========
(1) Includes commercial mortgage loans.
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 as a result of prepayments than is
reflected in the above table.
Residential Real Estate Lending. WSFS originates residential mortgage
loans with loan-to-value ratios up to 95%; however, the Bank generally requires
private mortgage insurance for up to 25% of the mortgage amount on mortgage
loans whose loan-to-value ratio exceeds 80%. The Bank does not have any
significant concentrations of such insurance with any one insurer. On a limited
basis, the Bank originates loans with loan-to-value ratios exceeding 80%without
a private mortgage insurance requirement. At December 31, 1995, the balance of
all such loans was approximately $15.0 million of which $4.8 million related to
lending intended to satisfy the requirements of the Community Reinvestment Act.
Generally, residential mortgage loans originated or purchased are underwritten
and documented in accordance with standard underwriting criteria published by
FNMA and/or 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, the institution requires title insurance, 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 the Bank are appraised by independent appraisers selected by the
Bank and subject to review in accordance with Bank standards.
The majority of adjustable-rate loans currently originated have
interest rates that adjust every year, with the change in rate limited to two
percent 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. The Bank generally underwrites adjustable-rate loans
under standards consistent with private mortgage insurance and secondary market
criteria. The Bank does not originate adjustable-rate mortgages with payment
limitations that could produce negative amortization.
-9-
Consistent with industry practice in its market area, the Bank has originated
adjustable-rate mortgage loans with initially discounted interest rates that
generally adjust to the fully indexed rate at the first adjustment period. All
such loans are underwritten at the fully-indexed rate.
The retention of adjustable-rate mortgage loans in the Bank's loan
portfolio helps mitigate the Bank's exposure 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 the Bank 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 the Bank's adjustable-rate mortgages
will adjust sufficiently to compensate for increases in the Bank's 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 and the loan is not repaid. Due-on-sale clauses are an
important means of adjusting the rate on existing fixed-rate mortgage loans to
current market rates. The Bank enforces due-on-sale clauses through foreclosure
and other legal proceedings to the extent available under applicable laws.
Commercial Real Estate and Commercial Lending. As a federal savings
bank, the Bank is permitted to invest up to 400% of its consolidated capital in
nonresidential real estate loans and up to 10% of its assets in commercial
loans. Prior to 1994, the Bank had been operating under a Capital Plan and was
subject to the terms and conditions of a Capital Directive. Consequently, WSFS
had discontinued the origination of commercial real estate loans other than
renewal of performing loans or funding outstanding commitments. Beginning in
1994, however,the Bank began to originate small business commercial real estate
loans in its primary market area.
WSFS has offered 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. Due to softening of the commercial real
estate market in the early 1990's; however, current loan-to-value ratios may
effectively be in excess of 80%.
Prior to the restrictions noted above, the Bank offered commercial
construction loans to developers. These loans were made as
"construction/permanent" loans, which provided for disbursement of loan funds
during construction and automatic conversion to permanent loans upon completion
of construction. Such construction loans were made on a short-term basis,
usually not exceeding two years, with interest rates indexed to the WSFS prime
rate and adjusted periodically as the Bank's prime rate changed. The loan
appraisal process includes the same criteria as required for permanent mortgage
loans as well as 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 independent of the commercial
lending area. Generally, the loan-to-value ratio for construction loans does
-10-
not exceed 80%. 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, 1995, $35.3 million was
committed for construction loans, of which $24.8 million had been disbursed.
The Bank's 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 $1.5 million, and their terms range from less than one year to
ten years. The loans generally carry variable interest rates indexed to the
Bank's prime rate at the time of closing. The Bank intends to continue
originating commercial loans to small businesses in its primary market area.
Commercial, commercial mortgages and construction lending entails
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 the Bank's commercial and commercial real
estate loans are concentrated in Delaware and surrounding areas. Construction
loans involve risks attributable to the fact that loan funds are advanced upon
the security of the project under construction, which, due to various factors,
is of uncertain value prior to the completion of construction. Moreover, because
of the uncertainties inherent in estimating construction costs, delays arising
from labor problems, material shortages and other unpredictable contingencies,
it is relatively difficult to accurately estimate the total loan funds required
to complete a project and or determine the related loan-to-value ratios.
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. One large extension of credit by the
Bank is limited by this 15% of capital restriction. Extensions of credit include
outstanding loans as well as contractual commitments to advance funds, such as
standby letters of credit, but do not include unfunded loan commitments. At
December 31, 1995, no borrower had collective outstandings exceeding the above
limits; however, an existing loan that exceed these limits does not have to be
terminated or divested since the legality of a loan is determined when it is
made and is not affected by subsequent legislative events.
Consumer Lending. Consumer loans (not including certain consumer loans
such as home equity lines of credit and other residential real estate secured
loans) may be made in an amount up to 35% of the Bank's assets. The Company
intends to emphasize consumer lending in the future as a means of enhancing
portfolio yields and capitalizing on existing customer relationships.
-11-
The table below sets forth consumer loans by type and lease financings
outstanding, in dollar amounts and percentages, at the dates indicated.
December 31,
----------------------------------------------------------
1995 1994
------------------------- ------------------------
(Dollars in Thousands)
Amount Percent Amount Percent
------ ------- ------ -------
Equity secured installment loans........ $52,793 24.8% $34,088 18.9%
Home equity lines of credit............. 36,817 17.3 40,727 22.6
Automobile.............................. 12,701 6.0 1,951 1.1
Unsecured lines of credit............... 7,017 3.3 3,683 2.0
Other................................... 4,937 2.3 10,733 6.0
-------- ----- -------- -----
114,265 53.7 91,182 50.6
Lease financings ....................... 98,840 46.3 89,095 49.4
-------- ----- -------- -----
Total consumer loans and
lease financings...................... $213,105 100.0% $180,277 100.0%
======== ===== ======== =====
December 31,
-------------------------------------------------------------------------------
1993 1992 1991
----------------------- -------------------- ------------------------
(Dollars in Thousands)
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Equity secured installment loans........ $24,485 14.7% $46,715 25.1% $56,312 26.3%
Home equity lines of credit............. 47,060 28.2 58,104 31.3 71,009 33.1
Automobile.............................. 2,567 1.5 4,313 2.3 6,636 3.1
Unsecured lines of credit............... 4,070 2.5 4,409 2.4 5,014 2.3
Other................................... 15,663 9.4 10,383 5.6 16,987 7.9
-------- ----- -------- ----- -------- -----
93,845 56.3 123,924 66.7 155,958 72.7
Lease financings ....................... 72,941 43.7 61,750 33.3 58,516 27.3
-------- ----- -------- ----- -------- -----
Total consumer loans and
lease financings...................... $166,786 100.0% $185,674 100.0% $214,474 100.0%
======== ===== ======== ===== ======== =====
-12-
The primary consumer loan products of the Company are equity secured
installment loans and home equity lines of credit. With a home equity line of
credit the borrower is granted a line of credit up to 75% 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, 1995, the Bank had extended a total of $93.1 million in home equity
lines of credit, of which $36.8 million had been drawn at that date. Home equity
lines of credit offer federal income tax advantages (in certain circumstances,
the interest paid on a home equity loan remains deductible) and the convenience
of their checkbook access and revolving credit features. Over the past few
years, however, home equity lines of credit have decreased as low interest rates
offered on 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 adverse experience to date.
Beginning in 1988, the focus of WSFS Credit Corporation ("WCC"),
formerly Star States Leasing Corporation, has been to originate finance type
leases. These leases are secured by motor vehicles and originated through
automobile dealerships. During 1995, WCC originated more than 1,400 leases which
approximated $33.6 million in new assets. Such leases have been a growing
component of the consumer loan portfolio.
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, the Bank 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 the Bank's overall policies. The Bank originates
fixed- and adjustable-rate residential real estate loans through banking
offices. In addition, WSFS has established relationships with correspondent
banks, mortgage brokers and real estate developers for loan referrals.
During 1995, WSFS originated $87 million of residential real estate
loans compared to 1994 originations of $68 million. From time to time, the Bank
has purchased whole loans and loan participations in accordance with its ongoing
asset and liability management objectives. Purchases of residential real estate
loans from correspondents and brokers primarily in the northeast region of the
United States totalled $14 million and $6 million while residential real estate
loan sales totaled $38 million and $13 million for the years ended December 31,
1995 and 1994, respectively. While the Bank 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, originated in accordance with current
asset/liability management strategies.
The Bank serviced for others approximately $229 million of residential
loans at December 31, 1995 compared to $180 million at December 31, 1994. The
Company also services residential loans for its portfolio totalling $187 million
and $246 million at December 31, 1995 and 1994.
The Bank originates commercial real estate and commercial loans through
the Bank's 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 1995, the Bank originated $91 million of
commercial and commercial real estate loans compared to $50 million in 1994.
These amounts represent gross contract amounts and do not reflect amounts
outstanding on such loans. Also during 1995, the Bank purchased a $47.5 million
portfolio of discounted commercial loans and commercial mortgages.
-13-
The Bank's consumer lending is conducted primarily through the branch
offices and is supported by a consumer credit department credit investigation
unit. WSFS originates a variety of consumer credit products, including home
improvement loans, home equity lines of credit, automobile loans, unsecured
lines of credit and other secured and unsecured personal installment loans.
During 1995, such consumer loan originations aggregated $72 million compared to
$55 million in 1994. See "Consumer Lending" for discussion regarding consumer
loan originations.
All loans to one borrower exceeding $500,000 in aggregate must be
approved by a management loan committee. Minutes of the management loan
committee meetings and individual loans exceeding $1.0 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
$1.5 million or for any additional advances or extensions on loans previously
classified by the Bank's regulatory authorities or the Bank's Asset Review
Department. Officers of the Bank have authority to approve smaller loans in
graduated amounts, depending upon their experience and management position.
Fee Income from Lending Activities. The Bank realizes interest and loan
fee income from lending activities, including fees for originating loans and for
servicing loans and loan participations sold. The institutions also receive
commitment fees for making commitments to originate construction, residential
and commercial real estate loans. Additionally, each entity receives loan fees
related to existing loans, which include prepayment charges, late charges and
assumption fees.
The Bank 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 also pays the Bank 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.
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, 1995. Loan fees other than those considered adjustments of yield
are reported as loan fee income, a component of other income.
LOAN LOSS EXPERIENCE, PROBLEM ASSETS AND DELINQUENCIES
The Company's results of operations are 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 loan portfolio to identify problem
loans as promptly as possible and take actions immediately which will minimize
losses. To accomplish this, the Bank's Asset Review Department monitors the
asset quality of the Company's loan and investment in real estate portfolios and
reports such information to the Chief Financial Officer and the Executive
Committee of the Board of Directors.
-14-
SUBSIDIARIES
During the 1980's, the Company sought to expand its sources of
noninterest income and its market area primarily through its investments in
subsidiaries. The Company's policy was to exercise the Bank's generally broad
investment authority to invest in subsidiaries which were considered
complementary to its traditional savings bank activities. As a result of the
Bank's failure to comply with minimum regulatory capital requirements in 1990,
it became subject to restrictions on asset growth, lending and capital
distributions, among other things. Consequently, the Company consolidated and/or
divested of certain subsidiary operations, thereby restructuring its balance
sheet and focusing on its core banking businesses.
At December 31, 1995, WSFS had five wholly owned, first-tier
subsidiaries which were engaged in leasing, real estate development, reverse
mortgages, consumer finance and insurance brokerage. WSFS is the sole investor
in and primary lender to its non-bank subsidiaries. At December 31, 1995, it had
$9.0 million invested in the equity of these companies and had lent them an
additional $115.1 million.
WSFS Credit Corporation, formerly Star States Leasing Corporation,
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 direct financing
leases through automobile dealerships in Pennsylvania, New Jersey and Maryland
as well as Delaware. WSFS Credit Corporation underwrites all leases originated
through automobile dealers in accordance with underwriting criteria generally
consistent with those of the Bank and the leasing industry. WSFS Credit
Corporation's total assets at December 31, 1995 and 1994 were $96.0 million and
$76.7 million, respectively.
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 are in the form of nonrecourse, first
mortgage loans, in return for which Star States Development Company is entitled
to receive repayment of principal and interest, and to share, at an agreed upon
percentage, in the profits of the project. The activities of Star States
Development Company are currently limited to the phase down of its existing real
estate investments and projects.
838 Investment Group, Inc. (formerly Star States Financial Services,
Inc.) was formed in 1989. This subsidiary markets various insurance products,
such as single-premium annuities and whole life policies, and mutual funds to
Bank customers through the Bank's branch system.
Community Credit Corporation (CCC), a consumer finance subsidiary, was
formed in June 1994 to provide fixed- and adjustable-rate consumer loans secured
by first and second mortgages. Loans made by CCC are most often used by the
borrower to consolidate debt, including an existing mortgage, or fund home
improvements. The type of borrower targeted by CCC has a credit history that may
limit their access to credit, given the relatively rigid lending guidelines used
by most financial institutions. The first office of CCC was opened August 1994
in Delaware.
Providential Home Income Plan, Inc. (Providential) is a San
Francisco-based reverse mortgage lender. The Bank 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 Providential was owned. See Note 17 of the Consolidated
Financial Statements for a further discussion of reverse mortgages.
-15-
On July 28, 1995, the Corporation's wholly-owned subsidiary, Fidelity
Federal completed the sale of deposits and certain real estate at four of its
branches to Commonwealth Savings Bank. In November, the remaining operations of
Fidelity Federal and its holding company, Star States Pennsylvania, Inc. were
merged into WSFS.
SOURCES OF FUNDS
The Bank funds operations through deposit growth and various borrowing
services, 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 either for 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 to ultimately support business expansion.
Deposits. The Bank offers various deposit programs to its customers,
including passbook and statement savings accounts, demand deposits,
interest-bearing demand deposits, money market deposit accounts and certificates
of deposits. The Bank also offers Christmas clubs, Individual Retirement
Accounts and Keogh Accounts. In addition, the Bank accepts negotiable rate
certificates with balances in excess of $100,000 from individuals, businesses
and municipalities in Delaware.
The Bank is the second largest independent banking institution
headquartered and operating in Delaware. It primarily attracts deposits through
its system of 14 branches. Thirteen of these branches are located in northern
Delaware's New Castle County, the Bank's primary market. These maintain
approximately 147,000 total account relationships with approximately 51,000
total households, or 24% of all households in New Castle County, Delaware. The
fourteenth and newest branch is in the state capital, Dover, located in central
Delaware's Kent County.
One of the most successful deposit related products developed by the
Bank is the WSFS Plan Card, a debit card product. The Plan Card, initiated in
1972, allowed customers to charge purchases made within a proprietary network of
merchants. These purchases were then debited to the customers' checking account
and a cash rebate was earned on each purchase. In 1991, the Plan Card became a
VISA(R) Check Card and as a result, WSFS depositors can now use the Plan Card at
all 12 million acceptance locations in the worldwide VISA(R) network.
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,
1995
Maturity Period ---------------
- --------------- (In Thousands)
Less than 3 months......................... $ 14,186
Over 3 months to 6 months.................. 9,046
Over 6 months to 12 months................. 4,178
Over 12 months............................. 10,110
--------
$ 37,520
========
-16-
Borrowings. The Company utilizes several sources of borrowings to fund
operations. As members of the FHLB of Pittsburgh, the Bank 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, the Bank 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 1/20th of their advances, whichever is
greater.
On December 29, 1993, the Company issued $32.0 million in 11% Senior
Notes due December 31, 2005 ("Notes") to certain institutional and accredited
investors in a private placement. See Note 9 of the Consolidated Financial
Statements for a further discussion of the Notes.
In December 1984, WSFS conveyed municipal bonds with a book value of
$29.0 million to a unit investment trust in exchange for $22.6 million. At
December 31, 1995, the outstanding amount on this borrowing was $2.7 million.
See Note 9 to the Consolidated Financial Statements for a further discussion of
this borrowing.
The Bank also has access to the federal funds market through member
banks of the Federal Reserve. Federal funds are excess reserves (reserves at the
federal reserve bank in excess of legal requirements) of member banks. Federal
funds are purchased through correspondent banks which act as intermediaries.
These transactions are of a short-term nature, generally overnight. The Bank
purchases federal funds as needed to meet liquidity requirements. In addition,
in December 1993, the Bank secured open end lines of credit with three different
brokerage firms, of which none was outstanding at December 31, 1995. Advances on
these open end lines of credit can be secured by investments, mortgages or
mortgage related securities. There were no federal funds purchased outstanding
at December 31, 1995, 1994 or 1993. Federal funds were not purchased during
1995, 1994 and 1993.
The Company also periodically sells reverse repurchase agreements,
which represent indebtedness of the Company arising from the sale of U.S.
Treasury and other government agency securities or mortgage-backed securities to
commercial banks and securities firms that the Company is obligated to
repurchase at specified prices and dates. For regulatory and financial reporting
purposes, repurchase agreements are classified as borrowings which are
collateralized by the security sold. These agreements have also been used as
short-term funding sources to maintain adequate liquidity levels. At December
31, 1995, $56.2 million of these borrowings were outstanding with a weighted
average rate of 5.97%. $16.2 million matures in 80 days and $40 million mature
in 3 years. The average outstanding during the year was $67.4 million with a
weighted average interest rate of 6.24%. The maximum outstanding at any
month-end during 1995 was $87.0 million. At December 31, 1994, $56.7 million of
these borrowings were outstanding with a weighted average interest rate of 6.35%
and maturities of 180 days or less. The average outstanding during 1994 was
$29.4 million with a weighted average interest rate of 5.33%. The maximum
outstanding at any month-end during 1994 was $80.1 million. The Corporation did
not utilize this type of borrowing in 1993.
-17-
EMPLOYEES
At December 31, 1995, the Company and its subsidiaries had 350
full-time equivalent employees, none of whom were represented by a collective
bargaining group. Management considers its relations with employees to be
satisfactory. The Company currently maintains a comprehensive employee benefit
program providing, among other benefits, a 401(k) plan, hospitalization and
major medical and dental insurance, paid sick leave, long-term disability
insurance and life insurance.
COMPETITION
The Bank is subject to intense competition in attracting and retaining
deposits and in lending funds from commercial banks and, to a lesser extent,
other savings banks, savings and loan associations and credit unions. The Bank
also competes with other providers of financial services, such as money market
and mutual funds, brokerage firms, investment companies, credit companies and
insurance companies. The Bank competes for deposits and loans by focusing on
customer service and offering a variety of products with competitive interest
rates and fees.
REGULATION
Regulation of the Company
General. The Company is a registered as savings and loan
holding company and is subject to OTS regulation, examination, supervision and
reporting requirements. As a subsidiary of a holding company, the Bank is
subject to certain restrictions in its dealings with the Company and other
affiliates.
Regulatory Capital Maintenance/Dividend Agreements. As a condition to
obtaining regulatory approval of their acquisitions of the Bank and Fidelity
Federal, respectively, the Company and the Bank were required to execute
agreements with the predecessor to the OTS with respect to the receipt of
dividends from the Bank respectively, and, in the case of the Bank, the
maintenance of its regulatory capital. Under the Regulatory Capital
Maintenance/Dividend Agreement between the Company and the predecessors to the
OTS, the Company agreed to cause the regulatory capital of the Bank to be
maintained at a level at or above the Bank's regulatory capital requirement and
to infuse sufficient capital to effect compliance with such requirement during
the first quarter after which the Bank fails to meet its regulatory capital
requirement. The Company further agreed that, without regulatory approval, it
would not accept dividends in excess of 50% of the institution's net income for
the fiscal year. The Company is permitted to accept dividends of up to 75% of
net income if the Bank's ratio of regulatory capital to liabilities would equal
7% or more after payment of the dividend and may accept dividends equal to 100%
of net income if such ratio would be 8% or more after the dividend payment.
Dividends permitted under the agreement may be deferred and paid in a subsequent
year provided that no dividend or repurchase of stock may reduce the Bank's
regulatory capital below its regulatory capital requirement. After notice of
default, the Company is prohibited from conveying its ownership of the Bank by
gift, sale, exchange or otherwise without regulatory approval. If a default is
not cured within 90 days and not waived, the predecessor to the OTS was entitled
to seek any available remedy and the Company must pay its attorney fees and
other reasonable expenses.
-18-
The Company had previously been given notice that it was in default
with respect to the Regulatory Capital Maintenance/Dividend Agreement. However,
no further action has been taken by the OTS and all such defaults were cured as
of December 31, 1993 when the Bank came into compliance with all minimum
regulatory capital requirements of the OTS. Because such defaults have been
cured, the Company does not anticipate that the OTS will seek any remedies under
the Regulatory Capital/Maintenance Dividend Agreement.
Activities Restrictions. The Board of Directors of the Company has
operated the Company as a multiple savings and loan holding company subject to
certain activity limitations. 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. Upon the merger of Fidelity Federal
into the Bank in November 1995, the Corporation became a unitary savings and
loan holding company.
Transactions with Affiliates. Transactions between savings associations
and any affiliate are governed by Sections 23A and 23B of the Federal Reserve
Act. An affiliate of a savings association is any company or entity which
controls, is controlled by or is under common control with the savings
association. In a holding company context, the parent holding company of a
savings association (such as the Company) and any companies which are controlled
by such parent holding company are affiliates of the savings association.
Generally, Sections 23A and 23B (i) limit the extent to which the savings
institution or its subsidiaries may engage in "covered transactions" with any
one affiliate to an amount equal to 10% of such institution's capital stock and
surplus, and limit the aggregate of all such transactions with all affiliates to
an amount equal to 20% of such capital stock and surplus and (ii) require that
all such transactions be on terms substantially the same, or at least as
favorable, to the institution or subsidiary as those provided to a non-affili-
ate. 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 subject to the restrictions contained in
Section 22(h) of the Federal Reserve Act on loans to executive officers,
directors and principal stockholders. Under Section 22(h), as amended by FIRREA
and FDICIA, 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 such persons may not exceed the institution's unimpaired capital and
unimpaired surplus. Section 22(h) also prohibits loans, above amounts
-19-
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, the Federal
Reserve Board pursuant to Section 22(h) requires that loans to directors,
executive officers and principal stockholders be made on terms substantially the
same as offered in comparable transactions to other persons. 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 on loans to executive officers and
the restrictions of 12 U.S.C. ss. 1972 on certain tying arrangements and
extensions of credit by correspondent banks. Section 22(g) of the Federal
Reserve Act 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 1972 (i)
prohibits a depository institution from extending credit to or offering any
other services, or fixing or varying the consideration for such extension of
credit or service, on the condition that the customer obtain some additional
service from the institution or certain of its affiliates or not obtain services
of a competitor of the institution, subject to certain exceptions, and (ii)
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.
Restrictions on Acquisitions. 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 multiple savings and loan
holding 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 acquiror 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).
-20-
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
(i) the federal association qualifies as a "domestic building and loan
association" under ss.7701(a)(19) of the Internal Revenue Code 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 and (ii) such branch would not result in the formation of a
prohibited multi-state multiple savings and loan holding company. 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.
The Bank Holding Company Act of 1956 has been amended to specifically
authorize the Federal Reserve Board to approve an application by a bank holding
company to acquire control of any savings association. Pursuant to rules
promulgated by the Federal Reserve Board, owning, controlling or operating a
savings association is a permissible activity for bank holding companies, if the
savings association engages only in deposit-taking activities and lending and
other activities that are permissible for bank holding companies. In approving
such an application, the Federal Reserve Board may not impose any restriction on
transactions between the savings association and its holding company affiliates
except as required by Sections 23A and 23B of the Federal Reserve Act.
A bank holding company that controls a savings association may merge or
consolidate the assets and liabilities of the savings association with, or
transfer assets and liabilities to, any subsidiary bank which is a BIF member
with the approval of the appropriate federal banking agency and the Federal
Reserve Board. The resulting bank will be required to continue to pay
assessments to the SAIF at the rates prescribed for SAIF members on the deposits
attributable to the merged savings association plus an annual growth increment.
In addition, the transaction must comply with the restrictions on interstate
acquisitions of commercial banks under the Bank Holding Company Act.
Regulation of the Bank
General. As a federally chartered savings institution, the Bank is
subject to extensive regulation by the OTS. The lending activities and other
investments of the Bank and the Association must comply with various federal
regulatory requirements. The OTS periodically examines the Bank for compliance
with regulatory requirements. The FDIC also has the authority to conduct special
examinations of the Bank as the insurer of deposits. The Bank must file reports
with OTS describing its activities and financial condition. The Bank 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, "core" capital equal to 3% of adjusted total assets and "total" capital
(a combination of core and "supplementary" capital) equal to 8% of risk-weighted
assets. In addition, the OTS has recently adopted regulations which 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
-21-
has the same definition as core capital. The OTS capital rule defines 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 and "qualifying supervisory
goodwill," less intangible assets other than certain qualifying supervisory
goodwill and certain purchased mortgage servicing rights. 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 certain purchased 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
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 ("nonincludable subsidiaries"). As of December 31, 1995, the
Bank had no investments in or extensions of credit to nonincludable
subsidiaries.
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 subsidiaries in which the savings
institution holds a minority interest and which are not engaged in activities
for which the capital rules require the savings institution to net its debt and
equity investments in such subsidiaries against capital. Adjusted total assets
are reduced by the amount of assets that have been deducted from capital, the
portion of savings institution's investments in subsidiaries that must be netted
against capital under the capital rules and, for purposes of the core capital
requirement, qualifying supervisory goodwill. At December 31, 1995, the Bank's
adjusted total assets for purposes of both the core and tangible capital
requirements were $1,217.8 million.
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 and lease loss allowances.
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 under 80%, multi-family mortgages (maximum 36 dwelling units) with
loan-to-value ratios under 80% and average annual occupancy rates over 80%, 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. OTS capital regulations require savings
institutions to maintain minimum total capital, consisting of core capital plus
supplemental capital, equal to 8.0% of risk-weighted assets. The Bank was in
compliance with all such standards as of December 31, 1995.
-22-
The OTS has recently adopted an amendment to its risk-based capital
requirements that will 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 will be measured in terms of the sensitivity of
its "net portfolio value" to changes in interest rates. The OTS notified the
Bank in 1995 that this proposal has been delayed indefinitely. The Bank has
determined that, on the basis of current financial data, it would not be deemed
to have more than normal level of interest rate risk under the proposed rule and
believes that it will not be required to increase its total capital as a result
of the rule.
Dividend Restrictions. OTS regulations impose additional limitations on
the payment of dividends and other capital distributions (including stock
repurchases and cash mergers) by the Bank. Under these regulations, a savings
institution that, immediately prior to, and on a pro forma basis after giving
effect to, a proposed capital distribution, has total capital (as defined by OTS
regulation) that is equal to or greater than the amount of its fully phased-in
capital requirements (a "Tier 1 Association") is generally permitted, after
notice, to make capital distributions during a calendar year in the amount equal
to the greater of: (a) 75% of its net income for the previous four quarters; or
(b) up to 100% of its net income to date during the calendar year plus an amount
that would reduce by one-half the amount by which its ratio of total capital to
assets exceeded its fully phased-in risk-based capital ratio requirement at the
beginning of the calendar year. A savings institution with total capital in
excess of current minimum capital ratio requirements but not in excess of the
fully phased-in requirements (a "Tier 2 Association") is permitted, after
notice, to make capital distributions without OTS approval of up to 75% of its
net income for the previous four quarters, less dividends already paid for such
period. A savings institution that fails to meet current minimum capital
requirements (a "Tier 3 Association") is prohibited from making any capital
distributions without the prior approval of the OTS. A Tier 1 Association that
has been notified by the OTS that it is in need of more than normal supervision
will be treated as either a Tier 2 or Tier 3 Association. At December 31, 1994,
the Bank and the Association were Tier 1 Associations. Despite the above
authority, the OTS may prohibit any savings institution from making a capital
distribution that would otherwise be permitted by the regulation, if the OTS
determines that the distribution would constitute an unsafe or unsound practice.
In response to the Company's request, by letter dated December 3, 1993,
the Regional Director of the Northeast Region of the OTS approved the payment of
dividends by the Bank in support of the Company's obligations under the Notes,
so long as, with respect to each such dividend (i) the Bank would not be
"undercapitalized" under the prompt corrective action provisions of the FDI Act
and would meet its minimum regulatory capital requirements after payment of such
dividend, (ii) dividends are limited to an amount which, when taken together
with other capital distributions, does not exceed the lesser of net income
earned in the most recent four fiscal quarters or net income earned to date
during the calendar year plus the amount that would reduce by one-half its
surplus capital ratio at the beginning of the calendar year, (iii) continued
progress is made by the Bank in the disposition and reduction of classified
assets, and (iv) at least thirty days prior notice (and such other notices as
may be required by law or regulation) of the declaration of such dividend is
provided to the OTS. This letter also notes that the approval contained therein
does not constrain the OTS in the future from taking any appropriate action,
including, without limitation, restricting future dividend payments based upon
safety and soundness concerns.
Deposit Insurance. The Bank is charged an annual premium by the BIF for
federal insurance on its respective 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.
-23-
The FDIC has established a risk-based assessment system for insured
depository institutions which became effective January 1, 1994. 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. Based on the data
reported to regulators for the date closest to the last day of the seventh month
preceding the semi-annual assessment period using the same percentage criteria
as in the prompt corrective action regulations. See "-- Prompt Corrective
Action." Institutions are assigned to one of three capital groups -- well
capitalized, adequately capitalized or undercapitalized. Undercapitalized
institutions consist of institutions that do not qualify as either "well
capitalized" or "adequately capitalized." 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. Subgroup A consists of financially sound institutions with only a few
minor weaknesses. Subgroup B consists of institutions that demonstrate
weaknesses which, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the deposit insurance fund.
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless effective corrective action is taken.
Current law prohibits the BIF and SAIF insurance premiums from being lowered
until their respective reserve ratios equal 1.25%. Furthermore, current law
prohibits SAIF members from converting to BIF membership, and vice versa, until
the SAIF has achieved its designated reserve ratio of 1.25%. In 1995, the FDIC
reduced insurance premiums for members of BIF, resulting in members of the SAIF
paying premiums that are substantially higher than those charged to members of
BIF. The FDIC stated that a premium differential might reduce earnings and
impair the ability to raise funds in the capital markets for members of SAIF. It
cannot be determined when or how long such increased premiums would continue.
The effect of such a reduction should be favorable to WSFS because its deposits
are insured by BIF. In 1995, Congress began discussing various proposals
designed to alleviate the insurance premium disparity between BIF and SAIF.
Included in these proposals is a one-time charge for SAIF deposits which would
bring the SAIF reserve levels to the levels at BIF. The effect of this
legislation, if any, has not been determined, however, since WSFS is BIF insured
it is not expected to result in any material affect on results of operations.
Prompt Corrective Action. 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.
The OTS adopted regulations, effective December 19, 1992, implementing
the prompt corrective action provisions of FDICIA. Under the regulations, 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;
-24-
(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 CAMEL 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 CAMEL
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%.
Proposed Standards for Safety and Soundness. Each federal banking
agency is required to establish non-capital safety and soundness standards for
institutions under its authority. The federal banking agencies, including the
OTS, have established standards covering internal controls, information systems
and internal audit systems, loan documentation, credit underwriting, asset
growth and compensation, fees, and benefits, and have proposed standards for
asset quality and earnings sufficiency. An institution which fails to meet any
of these standards, would be required to develop a plan acceptable to the
agency, specifying the steps that the institution will take to meet the
standards. Failure to submit or implement such a plan may subject the
institution to regulatory sanctions.
Federal Home Loan Bank System. The Bank 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, the Bank 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,
1995, of $15.9 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 for the
purpose of providing funds for residential housing finance. At December 31,
1995, the Bank had advances outstanding from the FHLB of $307.2 million.
Liquidity Requirements. The Bank is required to maintain average daily
balances of liquid assets (cash, certain time deposits, bankers' acceptances,
highly rated corporate debt and commercial paper, securities of certain mutual
funds, and specified United States government, state or federal agency
obligations) equal to the monthly average of not less than a specified
percentage (currently 5%) of its net withdrawable savings deposits plus
short-term borrowings. The Bank is also required to maintain average daily
balances of short-term liquid assets at a specified percentage (currently 1%) of
the total of its net withdrawable savings accounts and borrowings payable in one
year or less. Monetary penalties may be imposed for failure to meet liquidity
requirements. The Bank was in compliance with applicable liquidity requirements
at December 31, 1995.
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 $54.0 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 is to reduce the amount of the institution's
interest-earning assets. As of December 31, 1995, the Bank met its reserve
requirements.
-25-
TAXATION
Federal Income Taxation
The Company and its subsidiaries, as an affiliated group, file a
consolidated corporate income tax return each year for federal income tax
purposes. Among other things, a consolidated return allows the affiliated group
to avoid or defer tax on certain intercompany distributions and transfers and,
under certain circumstances, to reduce the taxable income of one member of the
group using the loss generated by another member.
Thrift institutions such as the Bank are generally subject to the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), in the
same general manner as other corporations. Further, thrift institutions which
satisfy certain conditions, including the asset composition test under Section
7701(a)(19) of the Code, may determine their bad debt deduction based upon an
annual addition to a bad debt reserve (the "reserve method") rather than upon
the actual amount of worthless debts arising during the year (the "specific
charge-off method"). The Bank maintained a bad debt reserve for tax purposes
through 1986 but failed to satisfy the asset composition test in fiscal year
1987 and therefore could not continue to use the thrift bad debt reserve method.
Moreover, because the Bank at the time had total assets in excess of $500
million, it could not use the reserve method available to commercial banks but
instead was required to switch to the specific charge-off method. As a result of
the change to the specific charge-off method, the Bank recaptured into income in
1987 the entire balance of its bad debt reserve.
For taxable years beginning after December 31, 1986, the Code imposes
an alternative minimum tax at a rate of 20%. The alternative minimum tax
generally applies to a base of regular taxable income plus certain tax
preferences ("alternative minimum taxable income" or "AMTI") and is payable to
the extent such AMTI is in excess of an exemption amount. The Code provides that
an item of tax preference is the excess of the bad debt deduction allowable for
a taxable year pursuant to the percentage of taxable income method over the
amount allowable under the experience method. The other items of tax preference
that constitute AMTI include (a) tax-exempt interest on newly-issued (generally,
issued on or after August 8, 1986) private activity bonds other than certain
qualified bonds and (b) for taxable years beginning after 1989, 75% of the
excess (if any) of (i) 75% of adjusted current earnings as defined in the Code,
over (ii) AMTI (determined without regard to this preference and prior to
reduction by net operating losses). Net operating losses can offset no more than
90% of AMTI. Certain payments of alternative minimum taxes may be used as
credits against regular tax liabilities in future years. In addition, for
taxable years after 1986 and before 1996, corporations, including thrift
institutions, are also subject to an environmental tax equal to 0.12% of the
excess of AMTI for the taxable year (determined without regard to net operating
losses and the deduction for the environmental tax) over $2.0 million.
As of December 31, 1995, the Company had available net operating loss
("NOL") carryforwards for federal and state tax purposes of approximately $17.1
million and $7.8 million, respectively, which may be used to reduce future
income taxes. There are restrictions applicable to approximately $17.1 million
of the NOL carryforwards attributable to Providential Home Income Plan, Inc., a
100% wholly owned subsidiary of WSFS which may only be used to offset future
taxable income generated on a separate return limitation year ("SRLY") basis.
These SRLY losses are additionally limited to two separate changes in control of
Providential. Because the restrictions imposed under Section 382 of the Code
restrict the annual amount of NOL carryforwards available for use, it could
result in the loss of a substantial portion of Providential's NOL due to
expiration.
-26-
The Company's federal income tax returns have not been audited. At
present, the Company is not aware of any present or pending federal or state tax
examinations nor any notice that would materially change the reported amount of
tax due.
See Note 12 to the Consolidated Financial Statements, incorporated
herein by reference, for further information regarding taxation.
State Income Taxation
As a Delaware corporation, the Company is subject to an annual
franchise tax based on the number of shares of common and preferred stock
authorized under its Certificate of Incorporation. The Bank and its subsidiaries
each file separate state tax returns. The Bank is also subject to annual
franchise taxes in Delaware based on its pretax net income.
-27-
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, 1995.
Net Book Value
of Property
Owned/ Date Lease or Leasehold
Location Leased Expires Improvements(2) Deposits
- -------- ------- ---------- --------------- --------
(In Thousands)
WSFS(3):
- ----
Main Office (1)* Owned $ 1,963 $174,559
9th & Market Streets
Wilmington, DE 19899
Union Street Branch* Leased 1998 68 52,926
3rd & Union Streets
Wilmington, DE 19805
Trolley Square Branch* Leased 1998 49 19,865
1711 Delaware Avenue
Wilmington, DE 19806
Fairfax Shopping Center Branch* Leased 1998 29 71,379
2005 Concord Pike
Wilmington, DE 19803
Branmar Plaza Shopping Center Branch* Leased 1998 20 59,155
1812 Marsh Road
Wilmington, DE 19810
Prices Corner Shopping Center Branch* Leased 1998 40 89,093
3202 Kirkwood Highway
Wilmington, DE 19808
Pike Creek Shopping Center Branch* Leased 2000 16 51,345
New Linden Hill & Limestone Roads
Wilmington, DE 19808
Tri-State Mall Branch Leased 1996 5 19,054
I-95 & Naamans Road
Claymont, DE 19803
Claymont Branch Owned 73 24,337
3512 Philadelphia Pike
Claymont, DE 19703
University Plaza Shopping Center Branch* Leased 1998 17 34,847
I-95 & Route 273
Newark, DE 19720
College Square Shopping Center Branch* Leased 2007 132 57,345
Route 273 & Liberty Avenue
Newark, DE 19711
Airport Plaza Shopping Center Branch* Leased 2013 157 59,656
Route 13
New Castle, DE 19720
Middletown Square Shopping Center Leased 2015 168 10,295
Inside Parkers Thriftway
701 N. Broad St.
Middletown, DE 19720
Dover Leased 2000 108 174
Inside Metro Food Market
Rt 13 & White Oak Road
Dover, DE 19901
Operations Center Owned 1,160 na
2400 Philadelphia Pike
Wilmington, DE 19703
-28-
Net Book Value
of Property
Owned/ Date Lease or Leasehold
Location Leased Expires Improvements(2) Deposits
- -------- ------- ---------- --------------- --------
(In Thousands)
WSFS(3):
- ----
Community Credit Corporation Leased 1996 13 na
- ----------------------------
10 Penn Mart Shopping Center
New Castle, DE 19720
Providential Home Income Plan, Inc. Leased 1997 0 na
- -----------------------------------
475 Sansome Street
Suite 540
San Francisco, CA 94111 ---------
Total at the Bank $724,030
========
* Represents ATM locations.
(1) Includes location of executive offices and approximately $63.8 million in
brokered deposits.
(2) The net book value of all the Company's investment in premises and
equipment totalled $6.4 million at December 31, 1995.
(3) In March 1995, the Bank acquired $8.1 million of deposits of a branch in
Middletown, DE from another savings institution.
(4) On July 28, 1995, the Bank sold/transferred the deposits at four
Fidelity Federal branches to Commonwealth Savings Bank of Valley Forge,
Pennsylvania.
(5) In February 1996, the Bank acquired $10.5 million of deposits from
another financial institution located in Dover, Delaware. These
deposits were transferred to the Bank's branch located inside the Metro
Food Market in Dover.
Item 3. Legal Proceedings
There are no material legal proceedings to which the Company or the
Bank is a party or to which any of its property is subject except as discussed
in Note 14 to the Consolidated Financial Statements for the year ended December
31, 1995.
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, 1995 through the solicitation of
proxies or otherwise.
-29-
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
National Market System under the symbol WSFS. At December 31, 1995, the
Corporation had 2,733 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. There have been no
dividends declared or paid on the Common Stock since the first quarter of 1990.
Payment of dividends by the Bank is subject to regulatory restrictions and the
covenants of the Senior Notes. For additional information regarding such
restrictions, see Note 9 to the Consolidated Financial Statements.
The closing market price of the common stock at December 31, 1995 was
$9.
Stock Price Range
---------------------------------
Low High
--- ----
1995 1st $ 3 1/2 $ 4 1/4
2nd 4 5 7/8
3rd 5 5/8 8 5/8
4th 7 3/8 10
1994 1st $ 3 1/4 $ 4 3/8
2nd 3 1/4 4 1/8
3rd 3 3/8 4 1/8
4th 3 3/8 4 1/8
-30-
Item 6. Selected Financial Data
1995 1994 1993 1992 1991
-------- -------- -------- ------- -------
(Dollars in Thousands, except per share data)
At December 31,
- ---------------
Total assets.................................... $1,218,826 $1,195,686 $ 994,692 $1,010,079 $1,146,533
Net loans (1)................................... 792,184 710,776 687,492 763,799 828,591
Investment securities (2)....................... 28,772 64,144 54,346 59,585 105,686
Investment in reverse mortgages, net............ 35,614 32,172 24,913
Securities purchased under agreements
to resell...................................... 7,098 45,599
Mortgage-backed securities (2)....