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, 2005
OR
(X) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-16668
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WSFS FINANCIAL CORPORATION
--------------------------
Delaware 22-2866913
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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. ( )
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). YES (X) NO ( )
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, based on the closing price of the registrant's common stock as
quoted on the Nasdaq National Marketsm as of June 30, 2005 was $242,244,000. For
purposes of this calculation only, affiliates are deemed to be directors,
executive officers and beneficial owners of greater than 5% of the outstanding
shares.
As of March 10, 2006, there were issued and outstanding 6,595,411 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 27, 2006 are incorporated by reference in Part
III hereof. Portions of the 2005 Annual Report to Shareholders are incorporated
by reference in Part II.
WSFS FINANCIAL CORPORATION
TABLE OF CONTENTS
Part I
Page
----
Item 1. Business .............................................................................. 3
Item 1A. Risk Factors .......................................................................... 19
Item 1B. Unresolved Staff Comments ............................................................. 20
Item 2. Properties ............................................................................ 21
Item 3. Legal Proceedings....................................................................... 24
Item 4. Submission of Matters to a Vote of Security Holders..................................... 24
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................. 25
Item 6. Selected Financial Data................................................................. 25
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................... 26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.............................. 26
Item 8. Financial Statements and Supplementary Data............................................. 26
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................................ 26
Item 9A. Controls and Procedures................................................................. 26
Item 9B. Other Information....................................................................... 26
Part III
Item 10. Directors and Executive Officers of the Registrant...................................... 26
Item 11. Executive Compensation.................................................................. 26
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters............................................................................... 26
Item 13. Certain Relationships and Related Transactions.......................................... 27
Item 14. Principal Accountant Fees and Services.................................................. 27
Item 15. Exhibits and Financial Statement Schedules.............................................. 27
Signatures.............................................................................. 29
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PART I
FORWARD-LOOKING STATEMENTS
Within this Annual Report on Form 10-K and exhibits thereto, management
has included certain "forward-looking statements" concerning the future
operations of WSFS Financial Corporation (the "Company" or "Corporation"). It
is management's desire to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. This statement is for
the express purpose of availing the Corporation of the protections of such
safe harbor with respect to all "forward-looking statements" contained in its
financial statements. Management has used "forward-looking statements" to
describe the future plans and strategies including expectations of the
Corporation's future financial results. Management's ability to predict
results or the effect of future plans and strategy is inherently uncertain.
Factors that could affect results include interest rate trends, competition,
the general economic climate in Delaware, the mid-Atlantic region and the
country as a whole, asset quality, loan growth, loan delinquency rates,
operating risk, uncertainty of estimates in general and changes in federal and
state regulations, among other factors. These factors should be considered in
evaluating the "forward-looking statements," and undue reliance should not be
placed on such statements. Actual results may differ materially from
management expectations. WSFS Financial Corporation does not undertake and
specifically disclaims any obligation to publicly release the result of any
revisions that may be made to any forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after the
date of such statements.
ITEM 1. BUSINESS
GENERAL
WSFS Financial Corporation (the "Company" or "Corporation") is a thrift
holding company headquartered in Wilmington, Delaware. Substantially all of the
Corporation's assets are held by its subsidiary, Wilmington Savings Fund
Society, FSB (Bank or WSFS). Founded in 1832, WSFS is one of the oldest
financial institutions in the country. As a federal savings bank, which was
formerly chartered as a state mutual savings bank, WSFS enjoys broader
investment powers than most other financial institutions. WSFS has served the
residents of the Delaware Valley for 174 years. WSFS is the largest thrift
institution headquartered in Delaware and the fourth largest financial
institution in the state on the basis of total deposits traditionally garnered
in-market. The Corporation's primary market area is the mid-Atlantic region of
the United States which is characterized by a diversified manufacturing and
service economy. The long-term business strategy of the Corporation is to serve
small and mid-size businesses through loans, deposits, investments, and related
financial services, and to gather retail core deposits. The strategic focus is
to exceed customer expectations, deliver stellar service and build customer
advocacy through highly trained, relationship oriented, friendly, knowledgeable,
and empowered Associates.
WSFS provides residential and commercial real estate, commercial and
consumer lending services, as well as retail deposit and cash management
services. WSFS also offers a variety of wealth management services and has
committed to expanding its operations in this area. Lending activities are
funded primarily with retail deposits and borrowings. The Federal Deposit
Insurance Corporation (FDIC) insures deposits to their legal maximum. As of
December 31, 2005, WSFS serves its customers primarily from its main office, 24
retail banking offices, loan production offices and operations centers located
in Delaware and southeastern Pennsylvania. The Corporation's website is
www.wsfsbank.com. The Corporation posts its Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those
reports pursuant to Section 13(a) of the Exchange Act and other information
relating to the Company on this website.
The Corporation has two consolidated subsidiaries, WSFS and Montchanin
Capital Management, Inc. (Montchanin). The Corporation also has one
unconsolidated affiliate, WSFS Capital Trust III. The Corporation has no
unconsolidated subsidiaries or off-balance sheet entities. Fully-owned
subsidiaries of WSFS include WSFS Investment
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Group, Inc., which markets various third-party insurance products and securities
through WSFS' retail banking system; and WSFS Reit, Inc., which holds qualifying
real estate assets and may be used in the future to raise capital.
In 2000, the Board of Directors approved management's plans to
discontinue the operations of WSFS Credit Corporation (WCC). At December 31,
2000 WCC had 7,300 lease contracts and 2,700 loan contracts, compared to zero
lease contracts and 31 loan contracts at December 31, 2005. WCC no longer
accepts new applications but will continue to service existing loans until their
maturity.
In the past, WSFS had two non-wholly owned subsidiaries, CustomerOne
Financial Network, Inc. (C1FN) and Wilmington Finance, Inc. (WF). C1FN, a 21%
owned subsidiary engaged in Internet and branchless banking, was sold in
November 2002. WF, a majority owned subsidiary engaged in sub-prime residential
mortgage banking was sold in January 2003. Both subsidiaries are therefore
classified as businesses held-for-sale in the Financial Statements. More
information is provided in the Business Held-For-Sale section of Management's
Discussion and Analysis (MD&A), and Note 3 to the Financial Statements of the
Corporation's 2005 Annual Report to Shareholders (Annual Report). These
divestitures were consistent with the Company's strategic direction to focus
resources and capital on WSFS' core community bank network in and around
Delaware.
Montchanin has one consolidated non-wholly owned subsidiary, Cypress
Capital Management, LLC (Cypress). As of December 31, 2005 Montchanin owned 80%
of Cypress. In January 2006, Montchanin increased its ownership in Cypress to
90%. Cypress is a Wilmington based investment advisory firm serving high
net-worth individuals and institutions.
COMPETITION
WSFS is the second largest independent full-service banking institution
headquartered and operating in Delaware. It attracts retail and commercial
deposits primarily through its system of 24 banking offices at December 31,
2005. Nineteen of these banking offices were located in northern Delaware's New
Castle County, WSFS' primary market. In addition to its business deposits, these
banking offices maintain approximately 191,000 total deposit account
relationships with approximately 80,000 total households in New Castle County.
Two banking offices were in the state capital, Dover, located in central
Delaware's Kent County and one of these banking offices was located in southern
Delaware's Sussex County. Two other banking offices were located in southeastern
Pennsylvania. In addition to its banking offices, WSFS also attracts commercial
loans through its loan production offices. WSFS also has 231 ATMs located in
Delaware.
The competition for deposit and loan products comes from other insured
financial institutions such as commercial banks, thrift institutions and credit
unions in the Registrant's market area. Deposit competition also includes a
number of insurance products sold by local agents and investment products such
as mutual funds and other securities sold by local and regional brokers.
SUBSIDIARIES
The Corporation has two consolidated subsidiaries, WSFS and Montchanin.
The Corporation also has one unconsolidated affiliate, WSFS Capital Trust III.
The Corporation has no unconsolidated subsidiaries or off-balance sheet
entities. WSFS Capital Trust III was formed in 2005 to issue $67.0 million of
aggregate principal amount of Pooled Floating Rate Securities at a variable
interest rate of 177 basis points over the three-month London InterBank Offered
Rate (LIBOR). The proceeds from this issue were used to fund the redemption of
$51.5 million of Floating Rate Capital Trust I Preferred Securities which had a
variable interest rate of 250 basis points over the three-month LIBOR rate. In
1998, the Corporation purchased a $50.0 million, ten-year interest cap in order
to limit its exposure on the $51.5 million of variable Trust preferred
Securities issued in 1998. This derivative instrument caps the three-month
LIBOR, the base rate of the trust preferred borrowings at 6.00%.
At December 31, 2005, WSFS had three wholly-owned, first-tier
subsidiaries WSFS Investment Group, WSFS Reit, Inc and WCC.
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WSFS Investment Group, Inc. was formed in 1989. This subsidiary markets
various third-party investment and insurance products, such as single-premium
annuities, whole life policies and securities primarily through WSFS' retail
banking system. WSFS Reit, Inc. is a real estate investment trust formed in 2002
to hold qualifying real estate assets and may be used in the future to raise
capital. WCC is engaged primarily in indirect motor vehicle leasing. In 2000,
the Corporation approved plans to discontinue the operations of WCC. WCC, which
had zero lease contracts and 31 loan contracts at December 31, 2005, no longer
accepts new applications but will continue to service existing loans until their
maturity. More information is provided in the Discontinued Operations section of
the MD&A and Note 2 to the Financial Statements of the Corporation's 2005 Annual
Report.
Montchanin was formed in late 2003 to provide asset management services
in the Corporation's primary market area. As of December 31, 2005 Montchanin
owned 80% of Cypress. In January 2006, Montchanin increased its ownership in
Cypress to 90%. Cypress is a Wilmington based investment advisory firm servicing
high net-worth individuals and institutions.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
Condensed average balance sheets for each of the last three years and
analyses of net interest income and changes in net interest income due to
changes in volume and rate are presented in "Results of Operations" included in
the MD&A.
INVESTMENT ACTIVITIES
The Corporation's short-term investment portfolio is intended to keep
its funds fully employed at the maximum after-tax return, while maintaining
acceptable credit, market and interest-rate limits, and providing needed
liquidity under current circumstances. 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,
--------------------------------------------------------------------------
2005 2004 2003
--------------------- ---------------------- --------------------
Percent Percent Percent
of of of
Amount Assets Amount Assets Amount Assets
------ ------ ------ ------ ------ ------
(Dollars In Thousands)
Held-to-Maturity:
----------------
Corporate bonds............................. $ - -% $ 310 -% $ 310 -%
State and political subdivisions ........... 4,806 0.2 7,457 0.3 10,100 0.5
------- --- --------- --- -------- ---
4,806 0.2 7,767 0.4 10,410 0.5
------- --- --------- --- -------- ---
Available-for-Sale:
------------------
Reverse Mortgages........................... 785 - (109) - 193 -
State and political subdivisions............ 975 - - - - -
U.S. Government and agencies................ 51,702 1.8 89,718 3.6 105,885 4.8
------- --- --------- --- -------- ---
53,462 1.8 89,609 3.6 106,078 4.8
------- --- --------- --- -------- ---
Short-term investments:
----------------------
Interest-bearing deposits in other banks (1) 148 - 531 - 1,095 -
------- --- --------- --- -------- ---
$58,416 2.0% $ 97,907 4.0% $117,583 5.3%
======= === ========= === ======== ===
(1) Interest-bearing deposits in other banks do not include deposits with a
maturity greater than one year.
Proceeds from the sale of investment securities classified as
available-for-sale during 2005 were $61.1 million, with a loss of $609,000
realized on these sales. Municipal bonds totaling $180,000 and corporate bonds
totaling $251,553 were called by the issuers with a gain of $4,000 realized on
these calls. Proceeds from the sale of investments during 2004 and 2003 were
$25.0 million and $21.2 million respectively. There was a net gain of $1,000
realized on sales in 2004 and
-5-
$200,000 loss realized on sales in 2003. The cost basis for all investment
security sales was based on the specific identification method. There were no
sales of investment securities classified as held-to-maturity.
The following table sets forth the terms to maturity and related
weighted average yields of investment securities and short-term investments at
December 31, 2005. Substantially all of the related interest and dividends
represent taxable income.
At December 31, 2005
--------------------
Weighted
Average
Amount Yield (1)
------ ---------
(Dollars in Thousands)
Held-to-Maturity:
-----------------
State and political subdivisions (2):
After one but within five years............................................... $ 3,299 7.39
After ten years .............................................................. 1,508 5.26
-------
Total debt securities, held-to-maturity ........................................ 4,807 6.72
-------
Available-for-Sale:
-------------------
Reverse Mortgages (3):
Within one year............................................................... $ 785 -
-------
785 -
-------
State and political subdivisions (2):
After one but within five years............................................... $ 635 3.83
After five but within ten years .............................................. 340 4.20
-------
975 3.96
-------
U.S. Government and agencies:
Within one year............................................................... $12,929 3.33
After one but within five years .............................................. 38,772 2.77
-------
51,701 2.91
-------
Total debt securities, available-for-sale ...................................... 53,461 2.89
-------
Total debt securities .......................................................... 58,268 3.20
-------
Short-term investments:
Interest-bearing deposits in other banks ..................................... 148 4.84
-------
Total short-term investments ................................................... 148 4.84
-------
$58,416 3.21%
=======
(1) Reverse mortgages have been excluded from weighted average yield
calculations because income can vary significantly from reporting period to
reporting period due to the volatility of factors used to value the
portfolio.
(2) Yields on state and political subdivisions are not calculated on a
tax-equivalent basis since the effect would be immaterial.
(3) Reverse mortgages do not have contractual maturities. The Corporation has
included reverse mortgages in maturities within one year.
In addition to the foregoing investment securities, the Company has
maintained an investment portfolio of mortgage-backed securities, $11.9 million
of which is classified as "trading." At December 31, 2005 mortgage-backed
securities with a par value of $369.0 million were pledged as collateral for
retail customer repurchase agreements,
-6-
municipal deposits and Federal Home Loan Bank advances. Accrued interest
receivable for mortgage-backed securities was $2.4 million and $1.9 million at
December 31, 2005 and 2004, respectively. No mortgage-backed securities were
sold during 2005.
The following table sets forth the book value of mortgage-backed
securities and their related weighted average contractual rates at the end of
the last three fiscal years.
December 31,
--------------------------------------------------------------------------
2005 2004 2003
---------------------- -------------------- --------------------
(Dollars in Thousands)
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
Held-to-Maturity:
----------------
Collateralized mortgage obligations ........ $ - -% $ - -% $ 1,785 6.32%
FHLMC....................................... - - 4 6.06 29 8.13
-------- ---- -------- ---- -------- ----
$ - -% $ 4 6.06% $ 1,814 6.18%
======== ==== ======== ==== ======= ====
Available-for-Sale:
-------------------
Collateralized mortgage obligations......... 526,546 4.73% 401,231 4.38% $390,467 4.29%
FNMA........................................ 49,785 3.98 58,650 3.86 70,345 3.90
FHLMC....................................... 32,211 4.05 33,788 3.80 37,936 3.70
GNMA........................................ 14,643 4.37 18,520 4.15 18,463 4.28
-------- ---- -------- ---- -------- ----
$623,185 4.63% $512,189 4.27% $517,211 4.19%
======== ==== ======== ==== ======== ====
Trading:
-------
Collateralized mortgage obligations......... $ 11,951 7.37% $ 11,951 5.32% $11,527 4.14%
======== ==== ========= ==== ======= ====
CREDIT EXTENSION ACTIVITIES
Over the past several years the Company has changed the composition of
its loan portfolio. WSFS' current lending activity is concentrated on lending to
small businesses in the mid-Atlantic region of the United States. In 2001,
residential loans comprised 43.7% of the loan portfolio, while the combination
of commercial loans and commercial real estate loans made up only 40.7%. In
contrast, at December 31, 2005, residential loans totaled only 25.8%, while
commercial loans and commercial real estate loans have increased to a combined
total of 61.8% of the loan portfolio. Traditionally, the majority of typical
thrift institutions' loan portfolios have consisted of first mortgage loans on
residential properties.
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The following table sets forth the composition of the Corporation's
loan portfolio by type of loan at the dates indicated. Other than as disclosed
below, the Corporation had no concentrations of loans exceeding 10% of total
loans at December 31, 2005:
December 31,
---------------------------------------------------------------------------------------------------
2005 2004 2003 2002 2001
----------------- -------------- -------------- -------------- --------------
Types of Loans Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------------- ------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Residential real estate (1). $ 457,651 25.8% $ 443,023 28.9% $ 458,408 35.1% $ 541,465 45.2% $ 487,845 43.7%
Commercial real estate:
Commercial mortgage......... 410,552 23.1 416,287 27.1 335,050 25.7 228,089 19.1 208,286 18.7
Construction................ 178,418 10.1 120,604 7.9 54,742 4.2 59,555 5.0 48,002 4.3
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total commercial
real estate........... 588,970 33.2 536,891 35.0 389,792 29.9 287,644 24.1 256,288 23.0
Commercial.................. 508,930 28.6 368,752 24.0 292,516 22.4 209,567 17.5 197,790 17.7
Consumer.................... 244,820 13.8 210,959 13.7 186,133 14.3 181,851 15.2 198,366 17.8
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Gross loans................. 1,800,371 101.4 1,559,625 101.6 1,326,849 101.7 1,220,527 102.0 1,140,289 102.2
Less:
(Deferred fees)
unearned income.......... (304) 0.0 (64) 0.0 (414) 0.0 2,043 0.2 3,320 0.3
Allowance for loan losses... 25,381 1.4 24,222 1.6 22,386 1.7 21,452 1.8 21,597 1.9
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Net loans................... $1,775,294 100.0% $1,535,467 100.0% $1,304,877 100.0% $1,197,032 100.0% $1,115,372 100.0%
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
(1) Includes $438, $3,249, $1,465, $121,349 and $84,691 of residential mortgage
loans held-for-sale at December 31, 2005, 2004, 2003, 2002, and 2001,
respectively.
-8-
The following table sets forth information as of December 31, 2005
regarding the amount of loans maturing in the Corporation's portfolios,
including scheduled repayments of principal based on contractual terms to
maturity. In addition, the table sets forth the 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 Less
than One Year category.
Less than One to Over
One Year Five Year Five Years Total
-------- --------- ---------- -----
(In Thousands)
Real estate loans (1) $ 75,597 $ 270,658 $ 521,510 $ 867,765
Construction loans .. 101,936 69,500 6,982 178,418
Commercial loans .... 199,302 187,874 121,754 508,930
Consumer loans ...... 113,807 54,355 76,658 244,820
---------- ---------- ---------- ----------
$ 490,642 $ 582,387 $ 726,904 $1,799,933
========== ========== ========== ==========
Rate sensitivity:
Fixed ............. $ 56,542 $ 220,547 $ 285,700 $ 562,789
Adjustable (2) .... 434,100 361,840 441,204 1,237,144
---------- ---------- ---------- ----------
Gross loans ......... $ 490,642 $ 582,387 $ 726,904 $1,799,933
========== ========== ========== ==========
(1) Includes commercial mortgage loans; does not include loans held-for-sale.
(2) Includes hybrid adjustable rate mortgages
The above schedule does not include any prepayment assumptions.
Prepayments tend to be highly dependent upon the interest rate environment.
Management believes that the actual repricing and maturity of the loan portfolio
is significantly shorter than is reflected in the above table as a result of
prepayments.
Residential Real Estate Lending.
WSFS originates residential mortgage loans with loan-to-value ratios up
to 100%. WSFS generally requires private mortgage insurance for up to 30% of the
mortgage amount for mortgage loans with loan-to-value ratios exceeding 80%. WSFS
does not have any significant concentrations of such insurance with any one
insurer. On a very limited basis, WSFS originates/purchases loans with
loan-to-value ratios exceeding 80% without a private mortgage insurance
requirement. At December 31, 2005, the balance of all such loans was
approximately $9.2 million. Generally, residential mortgage loans are
underwritten and documented in accordance with standard underwriting criteria
published by Federal Home Loan Mortgage Corporation (FHLMC) to assure maximum
eligibility for subsequent sale in the secondary market. However, unless loans
are specifically designated for sale, the Corporation holds newly originated
loans in its portfolio for long-term investment. Among other things, title
insurance is required to insure the priority of its lien, and fire and extended
coverage casualty insurance is required for the properties securing the
residential loans. All properties securing residential loans made by WSFS are
appraised by independent appraisers selected by WSFS and subject to review in
accordance with WSFS standards.
The majority of WSFS' adjustable-rate residential real estate loans
have interest rates that adjust yearly, after an initial period. Typically, the
change in rate is limited to two percentage points at the adjustment date.
Adjustments are generally based upon a margin (currently 2.75%) over the weekly
average yield on U.S. Treasury securities adjusted to a constant maturity, as
published by the Federal Reserve Board.
Generally, the maximum rate on these loans is up to six percent above
the initial interest rate. WSFS underwrites adjustable-rate loans under
standards consistent with private mortgage insurance and secondary market
criteria. WSFS does not originate adjustable-rate mortgages with payment
limitations that could produce negative amortization. Consistent with industry
practice in its market area, WSFS has typically originated adjustable-rate
mortgage loans with discounted initial interest rates.
-9-
The retention of adjustable-rate mortgage loans in WSFS' loan portfolio
helps mitigate WSFS' risk to changes in interest rates. However, there are
unquantifiable credit risks resulting from potential increased costs to the
borrower as a result of repricing adjustable-rate mortgage loans. It is possible
that during periods of rising interest rates, the risk of default on
adjustable-rate mortgage loans may increase due to the upward adjustment of
interest costs to the borrower. Further, although adjustable-rate mortgage loans
allow WSFS to increase the sensitivity of its asset base to changes in interest
rates, the extent of this interest sensitivity is limited by the periodic and
lifetime interest rate adjustment limitations. Accordingly, there can be no
assurance that yields on WSFS' adjustable-rate mortgages will adjust
sufficiently to compensate for increases in WSFS' cost of funds during periods
of extreme interest rate increases.
The original contractual loan payment period for residential loans is
normally 10 to 30 years. Because borrowers may refinance or prepay their loans
without penalty, such loans tend to remain outstanding for a substantially
shorter period of time. First mortgage loans customarily include "due-on-sale"
clauses on adjustable- and fixed-rate loans. This provision gives the
institution the right to declare a loan immediately due and payable in the event
the borrower sells or otherwise disposes of the real property subject to the
mortgage. Due-on-sale clauses are an important means of adjusting the rate on
existing fixed-rate mortgage loans to current market rates. WSFS enforces
due-on-sale clauses through foreclosure and other legal proceedings to the
extent available under applicable laws.
In general, loans are sold without recourse except for the repurchase
arising from standard contract provisions covering violation of representations
and warranties or, under certain investor contracts, a default by the borrower
on the first payment. The Corporation also has limited recourse exposure under
certain investor contracts in the event a borrower prepays a loan in total
within a specified period after sale, typically one year. The recourse is
limited to a pro rata portion of the premium paid by the investor for that loan,
less any prepayment penalty collectible from the borrower.
Commercial Real Estate, Construction and Commercial Lending.
Federal savings banks are generally permitted to invest up to 400% of
their total regulatory capital in nonresidential real estate loans and up to 20%
of its assets in commercial loans. As a federal savings bank which was formerly
chartered as a Delaware savings bank, WSFS has certain additional lending
authority.
WSFS offers commercial real estate mortgage loans on multi-family
properties and other commercial real estate. Generally, loan-to-value ratios for
these loans do not exceed 80% of appraised value at origination.
WSFS offers commercial construction loans to developers. In some cases
these loans are made as "construction/permanent" loans, which provides for
disbursement of loan funds during construction and automatic conversion to
mini-permanent loans (1-5 years) upon completion of construction. These
construction loans are made on a short-term basis, usually not exceeding two
years, with interest rates indexed to the WSFS prime rate or LIBOR, in most
cases, and adjusted periodically as these rates change. The loan appraisal
process includes the same evaluation criteria as required for permanent mortgage
loans, but also takes into consideration: completed plans, specifications,
comparables and cost estimates. Prior to approval of the credit, these items are
used as a basis to determine the appraised value of the subject property when
completed. Policy requires that all appraisals be reviewed independently of the
commercial lending area. Generally, the loan-to-value ratios for construction
loans do not exceed 75%. The initial interest rate on the permanent portion of
the financing is determined by the prevailing market rate at the time of
conversion to the permanent loan. At December 31, 2005, $282.4 million was
committed for construction loans, of which $178.4 million had been disbursed.
-10-
WSFS' commercial lending, excluding real estate loans, includes loans
for the purpose of working capital, financing equipment acquisitions, business
expansion and other business purposes. These loans generally range in amounts up
to $10 million, and their terms range from less than one year to seven years.
The loans generally carry variable interest rates indexed to WSFS' prime rate,
or LIBOR, at the time of closing. No one industry has a concentration greater
then 12.0% of these types of loans. WSFS intends to continue originating
commercial loans in its market area.
Commercial, commercial mortgage and construction lending have a higher
level of risk as compared to 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 may be more subject to adverse conditions
in the commercial real estate market or in the economy generally. The majority
of WSFS' commercial and commercial real estate loans are concentrated in
Delaware and surrounding areas.
Construction loans involve additional risk because loan funds are
advanced as construction projects progress. The valuation of the underlying
collateral can be difficult to quantify prior to the completion of the
construction. This is due to uncertainties inherent in construction such as
changing construction costs, delays arising from labor or material shortages and
other unpredictable contingencies. WSFS attempts to mitigate these risks and
plans for these contingencies through additional analysis and monitoring of its
construction projects. Construction loans receive independent inspections prior
to disbursement of funds.
Federal law limits the extensions of credit to any one borrower to 15%
of unimpaired capital, or 25% if the difference is secured by readily marketable
collateral having a market value that can be determined by reliable and
continually available pricing. Extensions of credit include outstanding loans as
well as contractual commitments to advance funds, such as standby letters of
credit, but do not include unfunded loan commitments. At December 31, 2005, no
borrower had collective outstandings exceeding the above limits.
Consumer Lending.
The primary consumer credit products of the Corporation are
equity-secured installment loans and home equity lines of credit. At December
31, 2005, WSFS had equity-secured installment loans totaling $136.7 million,
which represented 56% of total consumer loans. A home equity line of credit
grants a borrower a line of credit of up to 100% of the appraised value (net of
any senior mortgages) of their residence. This line of credit is secured by a
mortgage on the borrower's property and can be drawn upon at any time during the
period of agreement. At December 31, 2005, WSFS had extended $176.3 million in
home equity lines of credit, of which $87.5 million had been drawn at that date.
Home equity lines of credit potentially offer Federal income tax advantages, the
convenience of checkbook access and revolving credit features. Home equity lines
of credit expose the Corporation to the risk that falling collateral values may
leave it inadequately secured, whereas the risk on products like home equity
loans is mitigated as they amortize over time. The Corporation has not had any
significant adverse experience on home equity lines of credit to date.
-11-
The table below sets forth consumer loans by type, in amounts and percentages at
the dates indicated.
December 31,
----------------------------------------------------------------------------------------------
2005 2004 2003 2002 2001
------------------ --------------- --------------- ----------------- ---------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
Equity secured installment loans.. $136,721 55.8% $131,935 62.6% $ 124,411 66.9% $ 123,655 68.1% $ 125,597 63.3%
Home equity lines of credit....... 87,503 35.7 56,755 26.9 39,858 21.4 31,512 17.3 24,161 12.2
Automobile........................ 2,616 1.1 5,126 2.4 9,137 4.9 11,728 6.4 11,737 5.9
Unsecured lines of credit......... 8,780 3.6 9,338 4.4 10,506 5.6 12,402 6.8 20,156 10.2
Other............................. 9,200 3.8 7,805 3.7 2,221 1.2 2,554 1.4 16,715 8.4
-------- ----- -------- ----- --------- ----- --------- ----- --------- -----
Total consumer loans ............. $244,820 100.0% $210,959 100.0% $ 186,133 100.0% $ 181,851 100.0% $ 198,366 100.0%
======== ===== ======== ===== ========= ===== ========= ===== ========= =====
-12-
Loan Originations, Purchase and Sales.
Traditionally, WSFS has engaged in lending activities primarily in
Delaware and contiguous areas of neighboring states. As a federal savings bank,
however, WSFS may originate, purchase and sell loans throughout the United
States. WSFS has purchased limited amounts of loans from outside its normal
lending area when such purchases are deemed appropriate and consistent with
WSFS' overall practices. WSFS originates fixed-rate and adjustable-rate
residential real estate loans through its banking offices. In addition, WSFS has
established relationships with correspondent banks and mortgage brokers to
originate loans.
During 2005, the Corporation originated $499 million of residential
real estate loans. This compares to originations of $376 million in 2004. From
time to time, WSFS 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 mid-Atlantic region totaled $77.5 million for the year ended December 31,
2005 and $68.4 million for 2004. Residential real estate loan sales totaled $39
million in 2005, $51.1 million in 2004 and $116 million in 2003. While WSFS
generally intends to hold loans for the foreseeable future, WSFS sells certain
newly originated fixed-rate mortgage loans in the secondary market primarily to
control the interest rate sensitivity of its balance sheet. The Corporation
holds for investment certain of its fixed-rate mortgage loans consistent with
current asset/liability management strategies.
At December 31, 2005, WSFS serviced approximately $256 million of
residential loans for others compared to $245 million at December 31, 2004. The
Corporation also services residential loans for its own portfolio totaling $431
million and $412 million at December 31, 2005 and 2004, respectively.
WSFS originates commercial real estate and commercial loans through its
commercial lending division. Commercial loans are made for the purpose of
working capital, financing equipment acquisitions, business expansion and other
business purposes. During 2005, WSFS originated $597 million of commercial and
commercial real estate loans compared with $547 million in 2004. To reduce its
exposure on these types of loans, WSFS, at times will sell a portion of its
commercial real estate loan portfolio. Commercial real estate loan sales totaled
$36.6 million and $2.0 million in 2005 and 2004, respectively. These amounts
represent gross contract amounts and do not reflect amounts outstanding on such
loans.
WSFS' consumer lending is conducted primarily through its branch
offices. WSFS originates a variety of consumer credit products including home
improvement loans, home equity lines of credit, automobile loans, credit cards,
unsecured lines of credit and other secured and unsecured personal installment
loans. During 2005, consumer loan originations amounted to $20.0 million
compared to $16.8 million in 2004.
All loans to one borrowing relationship exceeding $3 million must be
approved by the senior management loan committee (SLC). The Executive Committee
(EC) of the Board of Directors approves the minutes of the management loan
committee meetings and approves individual loans exceeding $5 million to one
borrowing relationship. Individual Officers of WSFS have the authority to
approve smaller loan amounts, depending upon their experience and management
position. The Bank's credit policy includes a "House Limit" to one borrowing
relationship of 50% of its legal lending limit or approximately $18 million.
WSFS has one borrowing relationship of $34.8 million, which the EC approved to
exceed the "House Limit". This borrowing is secured by U.S. Treasury securities,
which have a value at maturity equal to or exceeding the loan payments.
Fee Income from Lending Activities.
WSFS earns fee income from lending activities, including fees for
originating loans, for servicing loans and for loan participations sold. The
Bank also receives fee income for making commitments to originate construction,
-13-
residential and commercial real estate loans. Additionally, the Bank collects
fees related to existing loans which include prepayment charges, late charges
and assumption fees.
WSFS charges fees for making loan commitments. Also as part of the loan
application process, the borrower may pay WSFS for out-of-pocket costs to review
the application, whether or not the loan is closed.
Most loan fees are considered adjustments of yield in accordance with
U.S. generally accepted accounting principles and are reflected in interest
income. Those fees represented an immaterial amount of interest income during
the three years ended December 31, 2005. Loan fees other than those considered
adjustments of yield (such as late charges) are reported as loan fee income, a
component of noninterest income.
LOAN LOSS EXPERIENCE, PROBLEM ASSETS AND DELINQUENCIES
The Corporation's results of operations can be negatively impacted by
nonperforming assets which include nonaccruing loans, nonperforming real estate
investments and assets acquired through foreclosure. Nonaccruing loans are those
on which the accrual of interest has ceased. Loans are placed on nonaccrual
status immediately if, in the opinion of management, collection is doubtful, or
when principal or interest is past due 90 days or more and collateral is
insufficient to cover principal and interest. Interest accrued, but not
collected at the date a loan is placed on nonaccrual status, is reversed and
charged against interest income. In addition, the amortization of net deferred
loan fees is suspended when a loan is placed on nonaccrual status. Subsequent
cash receipts are applied either to the outstanding principal balance or
recorded as interest income, depending on management's assessment of the
ultimate collectibility of principal and interest.
The Corporation endeavors to manage its portfolios to identify problem
loans as promptly as possible and take immediate actions to minimize losses. To
accomplish this, WSFS' Risk Management Department monitors the asset quality of
the Corporation's loan and investment in real estate portfolios and reports such
information to the Credit Policy Committee, the Audit Committee of the Board of
Directors and the Controller's Department.
SOURCES OF FUNDS
The Company manages its liquidity risk and funding needs
through its treasury function and its Asset/Liability Committee. Historically,
the Company has had success in growing its loan portfolio. For example, during
the year ended December 31, 2005, net loan growth resulted in the use of $228.8
million in cash. The loan growth was primarily the result of the continued
success increasing corporate and small business lending. Management expects this
trend to continue. While the Company's loan-to-deposit ratio has been well above
100% for many years, management has significant experience managing its funding
needs through borrowings and deposit growth.
As a financial institution, the Company has ready access to several sources
of funding. Among these are:
o Deposit growth
o The brokered CD market
o Borrowing from the FHLB
o Other borrowings such as repurchase agreements
o Cash flow from securities and loan repayments
o And net income of the Company
The Company's current branch expansion and renovation program is
focused on expanding the Company's retail footprint in Delaware and attracting
new customers to provide additional deposit growth. Retail deposit growth was
strong, equaling $141.7 million or 13% between December 31, 2004 and December
31, 2005.
-14-
Deposits. WSFS offers various deposit programs to its customers,
including savings accounts, demand deposits, interest-bearing demand deposits,
money market deposit accounts and certificates of deposits. In addition, WSFS
accepts negotiable rate certificates of deposit with balances in excess of
$100,000 from individuals, businesses and municipalities in Delaware.
WSFS is the second largest independent full service banking institution
headquartered and operating in Delaware. It primarily attracts deposits through
its system of 24 retail banking offices at December 31, 2005. Nineteen banking
offices were located in northern Delaware's New Castle County, WSFS' primary
market. These banking offices maintain approximately 191,000 total account
relationships with approximately 80,000 total households. Two banking offices
were in the state capital, Dover, located in central Delaware's Kent County. One
banking office was in Rehoboth located in Delaware's Sussex County and two other
banking offices were located in southeastern Pennsylvania.
The following table sets forth the amount of certificates of deposit of
$100,000 or more by remaining maturity at December 31, 2005:
December 31,
Maturity Period 2005
--------------- ----
(In Thousands)
Less than 3 months...................... $43,016
Over 3 months to 6 months............... 3,305
Over 6 months to 12 months.............. 60,330
Over 12 months.......................... 21,128
--------
$127,779
========
Borrowings. The Corporation utilizes the following borrowing sources to
fund operations.
Federal Home Loan Bank Advances
Advances from the Federal Home Loan Bank (FHLB) of Pittsburgh had rates
ranging from 2.00% to 5.45% at December 31, 2005. Pursuant to collateral
agreements with the FHLB, advances are secured by qualifying first mortgage
loans, qualifying fixed-income securities, FHLB stock and an interest-bearing
demand deposit account with the FHLB.
As a member of the FHLB of Pittsburgh, WSFS is required to acquire and
hold shares of capital stock in the FHLB of Pittsburgh in an amount at least
equal to 4.55% of its advances (borrowings) from the FHLB of Pittsburgh, plus
0.55% of the unused borrowing capacity. WSFS was in compliance with this
requirement with a stock investment in FHLB of Pittsburgh of $46.3 million at
December 31, 2005.
Four advances are outstanding at December 31, 2005 totaling $145.0
million, with a weighted average rate of 4.96% maturing in 2008 and beyond. They
are convertible on a quarterly basis (at the discretion of the FHLB) to a
variable rate advance based upon the three-month LIBOR rate, after an initial
fixed term. WSFS has the option to prepay these four advances at predetermined
times or rates.
Trust Preferred Borrowings
On April 6, 2005, the Corporation completed the issuance of $67.0
million of aggregate principal amount of Pooled Floating Rate Securities at a
variable interest rate of 177 basis points over the three-month LIBOR rate. The
proceeds from this issuance were used to fund the redemption of $51.5 million of
Floating Rate Capital Trust I Preferred Securities which had a variable interest
rate of 250 basis points over the three-month LIBOR rate.
-15-
Federal Funds Purchased and Securities Sold Under Agreements to
Repurchase
During 2005, WSFS purchased federal funds as a short-term funding
source. At December 31, 2005, WSFS had purchased $50.0 million in federal funds
at a rate of 4.19%. At December 31, 2004, WSFS had $50.0 million federal funds
purchased.
During 2005, WSFS sold securities under agreements to repurchase as a
short-term funding source. At December 31, 2005, securities sold under
agreements to repurchase had fixed rates ranging from 4.20% to 4.36%. The
underlying securities are U.S. Government agency securities with a book value of
$34.8 million at December 31, 2005. Securities sold under agreements to
repurchase with the corresponding carrying and market values of the underlying
securities are due as follows:
PERSONNEL
As of December 31, 2005 the Registrant had 515 fulltime equivalent
Associates (employees). The Associates are not represented by a collective
bargaining unit. Management believes its relationship with its Associates is
very good.
REGULATION
Regulation of the Corporation
Sarbanes-Oxley Act of 2002. On July 30, 2002, the President signed into
law the Sarbanes-Oxley Act of 2002 (the "Act"). The Securities and Exchange
Commission (the "SEC") has promulgated new regulations pursuant to the Act and
may continue to propose additional implementing or clarifying regulations as
necessary in furtherance of the Act. The passage of the Act and the regulations
implemented by the SEC subject publicly-traded companies to additional and more
cumbersome reporting regulations and disclosure. Compliance with the Act and
corresponding regulations has increased the Corporation's expenses.
General. The Corporation is a registered savings and loan holding
company and is subject to Office of Thrift Supervision (OTS) regulation,
examination, supervision and reporting requirements. As a subsidiary of a
holding company, WSFS is subject to certain restrictions in its dealings with
the Corporation and other affiliates.
Transactions with Affiliates; Tying Arrangements. Transactions between
savings associations and any affiliate are governed by Sections 23A and 23B of
the Federal Reserve Act. An affiliate of a savings association, generally, is
any company or entity which controls or is under common control with the savings
association or any subsidiary of the savings association that is a bank or
savings association. In a holding company context, the parent holding company of
a savings association (such as the Corporation) and any companies which are
controlled by such parent holding company are affiliates of the savings
association. Generally, Sections 23A and 23B (i) limit the extent to which the
savings institution or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such institution's capital
stock and surplus, and limit the aggregate of all such transactions with all
affiliates to an amount equal to 20% of such capital stock and surplus and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable, to the institution or subsidiary as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and similar types of transactions.
In addition to the restrictions imposed by Sections 23A and 23B, no savings
association may (i) lend or otherwise extend credit to an affiliate that engages
in any activity impermissible for bank holding companies, or (ii) purchase or
invest in any stocks, bonds, debentures, notes or similar obligations of any
affiliate, except for affiliates which are subsidiaries of the savings
association. Savings associations are also prohibited from extending credit,
offering services, or fixing or varying the consideration for any extension of
credit or service on the condition that the
-16-
customer obtain some additional service from the institution or certain of its
affiliates or that the customer not obtain services from a competitor of the
institution, subject to certain limited exceptions.
Restrictions on Acquisitions. A savings and loan holding company must
obtain the prior approval of the Director of OTS before acquiring, (i) control
of any other savings association or savings and loan holding company or
substantially all the assets thereof, or (ii) more than 5% of the voting shares
of a savings association or holding company thereof which is not a subsidiary.
Under certain circumstances, a savings and loan holding company is permitted to
acquire, with the approval of the Director of OTS, up to 15% of the voting
shares of an under-capitalized savings association pursuant to a "qualified
stock issuance" without that savings association being deemed controlled by the
holding company. Except with the prior approval of the Director of OTS, no
director or officer of a savings and loan holding company or person owning or
controlling by proxy or otherwise more than 25% of such company's stock, may
also acquire control of any savings association, other than a subsidiary savings
association, or of any other savings and loan holding company.
The Director of OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
associations in more than one state if: (i) the company involved controls a
savings institution which operated a home or branch office in the state of the
association to be acquired as of March 5, 1987; (ii) the acquirer is authorized
to acquire control of the savings association pursuant to the emergency
acquisition provisions of the Federal Deposit Insurance Act; or (iii) the
statutes of the state in which the association to be acquired is located
specifically permit institutions to be acquired by state-chartered associations
or savings and loan holding companies located in the state where the acquiring
entity is located (or by a holding company that controls such state-chartered
savings institutions). The laws of Delaware do not specifically authorize
out-of-state savings associations or their holding companies to acquire
Delaware-chartered savings associations.
The statutory restrictions on the formation of interstate multiple
holding companies would not prevent WSFS from entering into other states by
mergers or branching. OTS regulations permit federal associations to branch in
any state or states of the United States and its territories. Except in
supervisory cases or when interstate branching is otherwise permitted by state
law or other statutory provision, a federal association may not establish an
out-of-state branch unless the federal association qualifies as a "domestic
building and loan association" under Section 7701(a)(19) of the Internal Revenue
Code or as a "qualified thrift lender" under the Home Owners' Loan Act and the
total assets attributable to all branches of the association in the state would
qualify such branches taken as a whole for treatment as a domestic building and
loan association or qualified thrift lender. Federal associations generally may
not establish new branches unless the association meets or exceeds minimum
regulatory capital requirements. The OTS will also consider the association's
record of compliance with the Community Reinvestment Act of 1977 in connection
with any branch application.
Regulation of WSFS
General. As a federally chartered savings institution, WSFS is subject
to extensive regulation by the OTS. The lending activities and other investments
of WSFS must comply with various federal regulatory requirements. The OTS
periodically examines WSFS for compliance with regulatory requirements. The FDIC
also has the authority to conduct special examinations of WSFS as the insurer of
deposits. WSFS must file reports with OTS describing its activities and
financial condition. WSFS is also subject to certain reserve requirements
promulgated by the Federal Reserve Board. This supervision and regulation is
intended primarily for the protection of depositors. Certain of these regulatory
requirements are referred to below or appear elsewhere herein.
Regulatory Capital Requirements. Under OTS capital regulations, savings
institutions must maintain "tangible" capital equal to 1.5% of adjusted total
assets, "Tier 1" or "core" capital equal to 4% of adjusted total assets (or 3%
if the institution is rated composite 1 under the OTS examiner rating system),
and "total" capital (a combination of core and "supplementary" capital) equal to
8% of risk-weighted assets. In addition, OTS regulations impose certain
restrictions on savings associations that have a total risk-based capital ratio
that is less than 8.0%, a ratio of Tier 1
-17-
capital to risk-weighted assets of less than 4.0% or a ratio of Tier 1 capital
to adjusted total assets of less than 4.0% (or 3.0% if the institution is rated
Composite 1 under the OTS examination rating system). For purposes of these
regulations, Tier 1 capital has the same definition as core capital.
The OTS capital rule defines Tier 1 or core capital as common
stockholders' equity (including retained earnings), noncumulative perpetual
preferred stock and related surplus, minority interests in the equity accounts
of fully consolidated subsidiaries, certain nonwithdrawable accounts and pledged
deposits of mutual institutions and "qualifying supervisory goodwill," less
intangible assets other than certain supervisory goodwill and, subject to
certain limitations, mortgage and non-mortgage servicing rights, purchased
credit card relationships and credit-enhancing interest only strips. Tangible
capital is given the same definition as core capital but does not include
qualifying supervisory goodwill and is reduced by the amount of all the savings
institution's intangible assets except for limited amounts of mortgage servicing
assets. The OTS capital rule requires that core and tangible capital be reduced
by an amount equal to a savings institution's debt and equity investments in
"non-includable" subsidiaries engaged in activities not permissible to national
banks, other than subsidiaries engaged in activities undertaken as agent for
customers or in mortgage banking activities and subsidiary depository
institutions or their holding companies. At December 31, 2005, WSFS was in
compliance with both the core and tangible capital requirements.
The risk weights assigned by the OTS risk-based capital regulation
range from 0% for cash and U.S. government securities to 100% for consumer and
commercial loans, non-qualifying mortgage loans, property acquired through
foreclosure, assets more than 90 days past due and other assets. In determining
compliance with the risk-based capital requirement, a savings institution may
include both core capital and supplementary capital in its total capital,
provided the amount of supplementary capital included does not exceed the
savings institution's core capital. Supplementary capital is defined to include
certain preferred stock issues, non-withdrawable accounts and pledged deposits
that do not qualify as core capital, certain approved subordinated debt, certain
other capital instruments, general loan loss allowances up to 1.25% of
risk-weighted assets and up to 45% of unrealized gains on available-for-sale
equity securities with readily determinable fair values. Total capital is
reduced by the amount of the institution's reciprocal holdings of depository
institution capital instruments and all equity investments. At December 31,
2005, WSFS was in compliance with the OTS risk-based capital requirements.
Dividend Restrictions. As the subsidiary of a savings and loan holding
company, WSFS must submit notice to the OTS prior to making any capital
distribution (which includes cash dividends and payments to shareholders of
another institution in a cash merger). In addition, a savings association must
make application to the OTS to pay a capital distribution if (x) the association
would not be adequately capitalized following the distribution, (y) the
association's total distributions for the calendar year exceeds the
association's net income for the calendar year to date plus its net income (less
distributions) for the preceding two years, or (z) the distribution would
otherwise violate applicable law or regulation or an agreement with or condition
imposed by the OTS.
Deposit Insurance. The Federal Deposit Insurance Reform Act of 2005 was
enacted on February 8, 2006 as a part of the Deficit Reduction Act of 2005. The
Federal Deposit Insurance Reform Act will (i) merge the Bank Insurance Fund and
the Savings Association Insurance Fund into a new combined fund, to be called
the Deposit Insurance Fund, (ii) increase deposit insurance coverage for
retirement accounts to $250,000, (iii) index the current $100,000 insurance
coverage limit for standard accounts and the new $250,000 limit for retirement
accounts to reflect inflation (with adjustments for inflation every five years,
commencing January 1, 2011), (iv) require the Federal Deposit Insurance
Corporation to assess annual deposit insurance premiums on all banks and savings
institutions, (v) give a one-time insurance assessment credit totaling $4.7
billion to banks and savings institutions in existence on December 31, 1996 that
can be used to offset premiums otherwise due, (vi) impose a cap on the level of
the Deposit Insurance Fund and provide for dividends or rebates when the fund
grows beyond a specified threshold, (vii) adopt a historical basis concept for
distributing the aforementioned one-time credit and dividends (with each
institution's historical basis to be determined by a formula that looks back to
the institution's assessment base in 1996 and adds premiums paid since that
time) and (viii) authorize revisions to the current risk-based system for
assessing premiums,
-18-
including replacing the current fixed reserve ratio requirement of 1.25% with a
range of between 1.15% and 1.5% of insured deposits.
The merger of the two deposit insurance funds required by the Federal
Deposit Insurance Reform Act is to be effective by July 1, 2006. The Federal
Deposit Insurance Corporation is required to adopt final rules for the rest of
the provisions no later than 270 days after enactment. Such regulations will
result in the imposition of deposit insurance assessments on all members of the
Deposit Insurance Fund, including WSFS, and such assessments could have an
adverse effect on the operating expenses and results of operations of WSFS.
WSFS's management cannot predict, however, the rate of any such insurance
assessments or the effect of the assessments on its operations.
Federal Reserve System. Pursuant to regulations of the Federal Reserve
Board, a savings institution must maintain average daily reserves equal to 3% on
the first $42.1 million of transaction accounts, plus 10% on the remainder. This
percentage is subject to adjustment by the Federal Reserve Board. Because
required reserves must be maintained in the form of vault cash or in a
non-interest bearing account at a Federal Reserve Bank, the effect of the
reserve requirement may be to reduce the amount of the institution's
interest-earning assets. As of December 31, 2005 WSFS met its reserve
requirements.
ITEM 1A. RISK FACTORS
----------------------
The following are certain risks that management believes are specific
to our business. This should not be viewed as an all inclusive list and the
order is not intended as an indicator of the level of importance.
Future loan losses may negatively impact the Company
We are subject to credit risk, which is the risk of losing principal or
interest due to borrowers' failure to repay loans in accordance with their
terms. A downturn in the economy or the real estate market in our market areas
or a rapid change in interest rates could have a negative effect on collateral
values and borrowers' ability to repay. This deterioration in economic
conditions could result in losses to the Bank. To the extent loans are not paid
timely by borrowers, the loans are placed on non-accrual, thereby reducing
interest income.
Rapidly changing interest rate environments could reduce our profitability
Interest and fees on loans and securities, net of interest paid on
deposits and borrowings, are a large part of our net income. Interest rates are
key drivers of our net interest margin and subject to many factors beyond the
control of management. As interest rates change, net interest income is
affected. Rapid increases or decreases in interest rates in the future could
negatively impact the Company's net interest margin.
Liquidity risk
Due to the Company's continued success in our lending operations,
particularly in corporate and small business lending, our loans exceed customer
deposit funding. Changes in interest rates or alternative investment
opportunities and other factors may make deposit gathering more difficult.
Additionally, interest rate changes or disruptions in the capital market may
make the terms of the borrowings and brokered deposits less favorable. As a
result, there is a risk that we will not have funds to meet our obligations when
they come due. Interest Rate and Liquidity risk is managed by the
Asset/Liability Committee (ALCO). While the Company's loan-to-deposit ratio has
been well above 100% for many years, management has significant experience
managing its funding needs through borrowings and deposit growth. A liquidity
crisis plan has been developed and is an important part of liquidity management.
-19-
The financial services industry is very competitive
We face competition in attracting and retaining deposits, making
loans, and providing other financial services throughout our market area. Our
competitors include other community banks, larger banking institutions, and a
wide range of other financial institutions such as credit unions,
government-sponsored enterprises, mutual fund companies, insurance companies and
other non-bank businesses. Many of these competitors have substantially greater
resources than us. If we are unable to compete effectively, we will lose market
share and income from deposits and loans, which would negatively impact our net
interest margins. Profitability of other products may be reduced as well.
The Company may not be able to achieve its growth plans or effectively manage
its growth
There can be no assurance that growth opportunities will be available
or that growth will be successfully managed. This includes, but is not limited
to, growth in generating loans and gathering deposits. Due to our investment in
future growth, failure to obtain sufficient growth would negatively effect our
net income.
Inability to hire or retain certain key professionals, management and staff
could adversely affect our revenues and net income
We rely on key personnel to manage and operate our business, including
major revenue generating functions such as our loan and deposit portfolios. The
loss of key staff may adversely affect our ability to maintain and manage these
portfolios effectively, which could negatively effect our revenues. In addition,
loss of key personnel could result in increased recruiting and hiring expenses,
which could cause a decrease in our net income.
ITEM 1B. UNRESOLVED STAFF COMMENTS
----------------------------------
None.
-20-
ITEM 2. PROPERTIES
------------------
The following table sets forth the location and certain additional
information regarding the Corporation's offices and other material properties at
December 31, 2005.
Net Book Value
Of Property
Owned/ Date Lease or Leasehold
Location Leased Expires Improvements (1) Deposits
-------- ------ ---------- ---------------- ---------
(In Thousands)
-----------------------------
WSFS:
-----
Main Office (2) Owned $1,006 $635,880
9th & Market Streets
Wilmington, DE 19899
Union Street Branch Leased 2008 67 46,622
3rd & Union Streets
Wilmington, DE 19805
Trolley Square Branch Leased 2006 9 27,361
1711 Delaware Avenue
Wilmington, DE 19806
Fairfax Shopping Center Branch Leased 2008 84 62,627
2005 Concord Pike
Wilmington, DE 19803
Branmar Plaza Shopping Center Branch Leased 2008 13 72,396
1812 Marsh Road
Wilmington, DE 19810
Prices Corner Shopping Center Branch Leased 2008 21 89,238
3202 Kirkwood Highway
Wilmington, DE 19808
Pike Creek Shopping Center Branch Leased 2006 144 67,635
New Linden Hill & Limestone Roads
Wilmington, DE 19808
University Plaza Shopping Center Branch Leased 2008 68 43,259
I-95 & Route 273
Newark, DE 19712
College Square Shopping Center Branch (3) Leased 2007 168 73,141
Route 273 & Liberty Avenue
Newark, DE 19711
Airport Plaza Shopping Center Branch Leased 2013 736 65,283
144 N. DuPont Hwy.
New Castle, DE 19720
Stanton Branch Leased 2006 29 14,453
Inside ShopRite at First State Plaza
1600 W. Newport Pike
Wilmington, DE 19804
Glasgow Branch Leased 2008 70 19,970
Inside Genuardi's at Peoples Plaza
Routes 40 & 896
Newark, DE 19804
Middletown Crossing Shopping Center Leased 2017 1,257 29,872
Route 299 and Silver Lake Road
Middletown, DE 19709
Dover Branch Leased 2010 2 16,968
Inside Metro Food Market
Rt 134 & White Oak Road
Dover, DE 19901
-21-
Net Book Value
Of Property
Owned/ Date Lease or Leasehold
Location Leased Expires Improvements (1) Deposits
-------- ------ ---------- ---------------- ---------
(In Thousands)
-----------------------------
WSFS (continued...):
--------------------
West Dover Loan Office Leased 2009 7 229
Greentree Office Center
160 Greentree Drive
Suite 105
Dover, DE 19904
Blue Bell Loan Office Leased 2006 - N/A
550 Township Line Road
Suite 400
Blue Bell, PA 19422
Glen Eagle Branch Leased 2008 106 7,098
Inside Genaurdi's Family Market
475 Glen Eagle Square
Glen Mills, PA 19342
University of Delaware-Trabant
University Center Leased 2008 136 9,054
17 West Main Street
Newark, DE 19716
Brandywine Branch Leased 2009 96 18,882
Inside Genaurdi's Family Market
2522 Foulk Road
Wilmington, DE 19810
Wal-Mart Branch Leased 2009 236 6,693
Route 40 & Wilton Boulevard
New Castle, DE 19720
Operations Center Owned 829 N/A
2400 Philadelphia Pike
Wilmington, DE 19703
Longwood Branch Leased 2010 119 6,637
830 E. Baltimore Pike
E. Marlborough, PA 19348
Holly Oak Branch Leased 2010 93 17,612
Inside Superfresh
2105 Philadelphia Pike
Claymont, DE 19703
Hockessin Branch Leased 2015 652 39,824
7450 Lancaster Pike
Wilmington, DE 19707
Lewes Loan Center Leased 2008 109 407
Southpointe Professional Center
1515 Savannah Road, Suite 103
Lewes Beach, DE 19958
Fox Run Shopping Center Leased 2006 1,113 19,159
Bear, DE
Camden Town Center Leased 2024 1,186 15,704
4566 S. Dupont Highway
Camden, DE 19934
Rehoboth Leased 2029 1,045 40,232
Lighthouse Plaza
Route #1
Rehoboth, DE 19971
Loan Operations Leased 2007 107 N/A
30 Blue Hen Drive, Suite 200
Newark, DE 19713
West Dover (4) Owned 1,321 N/A
1486 Forest Avenue
Dover, DE 19904
-22-
Net Book Value
Of Property
Owned/ Date Lease or Leasehold
Location Leased Expires Improvements (1) Deposits
-------- ------ ---------- ---------------- ---------
(In Thousands)
-----------------------------
WSFS (CONTINUED...):
--------------------
WSFS Bank Center (5) Leased 2019 - N/A
500 Delaware Avenue
Wilmington, DE 19801
MONTCHANIN CAPITAL MANAGEMENT, INC. Leased 2010 22 N/A
----------------------------------
1220 Market Street
Suite 705
Wilmington, DE 19801
CYPRESS CAPITAL MANAGEMENT, LLC Leased 2010 5 N/A
-------------------------------
1220 Market Street
Suite 704
Wilmington, DE 19801
WSFS REIT, INC. Leased 2006 - N/A
--------------
227 East Main Street
Elkton, MD 21921
Friess Building (6) (7) Owned 1,872 N/A
3908 Kennett Pike
Greenville, DE Property
Fairfax Building Owned 6,202 N/A
2005 Concord Pike
Wilmington, DE 19801
-----------
$ 1,446,236
===========
(1) The net book value investment in premise and equipment totaled $22.9
million at December 31, 2005.
(2) Includes location of executive offices.
(3) Includes the Company's education and development center.
(4) As of December 31, 2005, this branch was under construction. Construction
was completed in February 2006.
(5) New Headquarters Building under construction at December 31, 2005. Lease
begins in January 2007. The Company has a minority ownership in this
property.
(6) Property transferred to WSFS Reit, Inc. in 2002.
(7) Transferred to Real Estate Held for Investment in October 2005.
-23-
ITEM 3. LEGAL PROCEEDINGS
-------------------------
There are no material legal proceedings to which the Corporation or WSFS is
a party or to which any of its property is subject.
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, 2005 through the solicitation of
proxies or otherwise.
-24-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
--------------------------------------------------------------------------------
ISSUER PURCHASES OF EQUITY SECURITIES
-------------------------------------
The information contained under the section captioned "Market for
Registrant's Common Equity and Related Stockholder Matters" in the 2005 Annual
Report to Stockholders (the "Annual Report") is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
-------------------------------
2005 2004 2003 2002 2001
----------- ------------ ----------- ---------- -----------
(Dollars in Thousands, Except Per Share Data)
At December 31,
---------------
Total assets ....................... $ 2,846,752 $ 2,502,956 $ 2,207,077 $ 1,705,000 $ 1,913,920
Net loans (1) ...................... 1,775,294 1,535,467 1,304,877 1,197,032 1,115,372
Investment securities (2) .......... 56,704 97,485 116,292 21,777 14,194
Investment in reverse mortgages, net 785 (109) 193 1,131 33,939
Other investments .................. 46,466 44,477 44,771 93,500 122,889
Mortgage-backed securities (2) ..... 620,323 524,144 530,552 148,238 361,724
Deposits ........................... 1,446,236 1,234,962 923,333 898,396 1,146,117
Borrowings (3) ..................... 1,127,997 1,002,609 1,031,058 466,006 595,480
Trust preferred borrowings ......... 67,011 51,547 50,000 50,000 50,000
Stockholders' equity ............... 181,975 196,303 187,992 182,672 100,003
Number of full-service branches (4) 24 24 23 21 27
For the Year Ended December 31,
-------------------------------
Interest income .................... $ 136,022 $ 104,110 $ 89,299 $ 94,703 $ 101,338
Interest expense ................... 62,380 37,246 31,301 33,434 46,597
Noninterest income ................. 34,653 31,950 26,166 124,060 21,125
Noninterest expenses ............... 62,877 55,699 49,417 51,617 47,689
Income from continuing operations .. 27,856 25,757 21,233 88,018 17,762
Net income ......................... 27,856 25,900 63,022 101,141 17,083
Earnings per share:
Basic:
Income from continuing operations $ 4.10 $ 3.60 $ 2.73 $ 9.69 $ 1.85
Net income ...................... 4.10 3.62 8.11 11.13 1.78
Diluted:
Income from continuing operations 3.89 3.39 2.58 9.34 1.84
Net income ...................... 3.89 3.41 7.65 10.73 1.77
Interest rate spread ............... 2.91% 3.07% 3.02% 4.97% 4.64%
Net interest margin ................ 3.13 3.24 3.29 4.93 4.51
Return on average equity (5) ....... 14.78 13.54 10.60 70.69 17.69
Return on average assets (5) ....... 1.05 1.10 1.09 6.22 1.33
Average equity to average assets (5) 7.10 8.13 10.28 8.79 7.50
(1) Includes loans held-for-sale.
(2) Includes securities available-for-sale.
(3) Borrowings consist of FHLB advances, securities sold under agreement to
repurchase and other borrowed funds.
(4) WSFS opened one branch in 2004, opened two branches in 2003, transferred
six branches to other financial institutions in 2002, and closed one branch
in 2001.
(5) Based on continuing operations.
-25-
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
--------------------------------------------------------------------------------
OF OPERATIONS
-------------
The information contained in the section captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Annual
Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------
The information contained in the section captioned "Market Risk" in the
Annual Report is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DISCLOSURES
-----------------------------------------------------------
The Registrant's financial statements listed in Item 15 herein are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
--------------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None
ITEM 9A. CONTROLS AND PROCEDURES
--------------------------------
Disclosure Controls and Procedures
The Corporation's management evaluated, with the participation of the
Corporation's Chief Executive Officer and Chief Financial Officer, the
effectiveness of the Corporation's disclosure controls and procedures as of the
end of the period covered by this report. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Corporation's
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Corporation in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management's report on the Corporation's internal control over financial
reporting appears in the Annual Report and is incorporated herein by reference.
The attestation report of KPMG LLP on management's assessment of the
Corporation's internal control over financial reporting appears in the Annual
Report and is incorporated herein by reference.
During the last quarter of the year under report, there was no change in
the Corporation's internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the Corporation's
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
--------------------------
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------
The Information which appears under the heading "Section 16a Beneficial
Ownership Reporting Compliance" and "Proposal 1 - Election of Directors" in the
Registrant's definitive proxy statement for the registrant's Annual Meeting of
Stockholders to be held on April 27, 2006 (the "Proxy Statement") is
incorporated herein by reference.
The Corporation has adopted a Code of Ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
controller or persons performing similar functions. A copy of the Code of Ethics
is posted on the Corporation's website at www.wsfsbank.com.
ITEM 11. EXECUTIVE COMPENSATION
-------------------------------
The information which appears under the heading "Proposal I - Election of
Directors" in the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
--------------------------------------------------------------------------------
RELATED SHAREHOLDER MATTERS
---------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by reference
to the section captioned "Voting Securities and Principal Holders
Thereof" of the Proxy Statement
(b) Security Ownership of Management
Information required by this item is incorporated herein by reference
to the section captioned "Proposal 1 Election of Directors - Stock
Ownership of Management" of the Proxy Statement
(c) Management of the Corporation knows of no arrangements, including any
pledge by any person of securities of the Corporation, the operation
of which may at a subsequent date result in a change in control of the
registrant.
(d) Securities Authorized for Issuance Under Equity Compensation Plans
-26-
Set forth below is information as of December 31, 2005 with respect to
compensation plans under which equity securities of the Registrant are
authorized for issuance.
Equity Compensation Plan Information
(a) (b) (c)
Number of securities
Number of Securities Weighted-Average remaining available for
to be issued upon exercise price of future issuance under
exercise of outstanding outstanding equity compensation plans
Options and Options and (excluding securities
Phantom Stock Awards Phantom Stock Awards reflected in column (a)
-------------------- -------------------- -----------------------
Equity compensation plans
approved by stockholders (1) 745,949 $ 31.60 268,193
Equity compensation plans
not approved by stockholders n/a n/a n/a
------- ------- -------
TOTAL 745,949 $ 31.60 268,193
======= ======= =======
(1) Plans approved by stockholders include the 1997 Stock Option Plan, as
amended and the 2005 Incentive Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------
The information which appears under the heading "Business Relationships and
Related Transactions" in the Proxy Statement is incorporated herein by
reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
-----------------------------------------------
The information called for by this item is incorporated herein by reference
to the section entitled "Independent Public Accountants" in the Proxy Statement.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
---------------------------------------------------
(a) Listed below are all financial statements and exhibits filed as part of
this report, and are incorporated by reference.
1. The consolidated statements of Condition of WSFS Financial Corporation
and subsidiary as of December 31, 2005 and 2004, and the related
consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years in the three year period ended
December 31, 2005, together with the related notes and the independent
auditors' report of KPMG LLP, independent registered public accounting
firm.
2. Schedules omitted as they are not applicable.
-27-
The following exhibits are incorporated by reference herein or annexed to this
Annual Report:
Exhibit
Number Description of Document
------ -----------------------
3.1 Registrant's Certificate of Incorporation, as amended is incorporated herein by
reference to Exhibit 3.1 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994.
3.2 Amended and Restated Bylaws of WSFS Financial Corporation, incorporated herein by
reference to Exhibit 3.2 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2003.
10.1 WSFS Financial Corporation, 1994 Short Term Management Incentive Plan Summary Plan
Description is incorporated herein by reference to Exhibit 10.7 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994.
10.2 Amended and Restated Wilmington Savings Fund Society, Federal Savings Bank 1997
Stock Option Plan is incorporated herein by reference to the Registrant's
Registration Statement on Form S-8 (File No. 333-26099) filed with the Commission
on April 29, 1997.
10.3 2000 Stock Option and Temporary Severance Agreement among Wilmington Savings Fund Society,
Federal Savings Bank, WSFS Financial Corporation and Marvin N. Schoenhals on
February 24, 2000 is incorporated herein by reference to Exhibit 10.4 of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 2000.
10.4 Severance Policy among Wilmington Savings Fund Society, Federal Savings Bank and certain
Executives dated March 13, 2001, as amended is incorporated herein by reference to
Exhibit 10.5 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2000.
10.5 WSFS Financial Corporation's 2005 Incentive Plan is incorporated herein by reference
to appendix A of the Registrant's Definitive Proxy Statement on Schedule 14-A for
the 2005 Annual Meeting of Stockholders.
13 Portions of the Corporation's 2004 Annual Report to Shareholders
21 Subsidiaries of Registrant.
23 Consent of KPMG LLP
31 Certification pursuant to Rule 13a-14 of the Exchange Act
32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Exhibits 10.1 through 10.4.1 represent management contracts or compensatory plan
arrangements.
-28-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WSFS FINANCIAL CORPORATION
Date: March 15, 2006 BY: /s/ Marvin N. Schoenhals
-----------------------------
Marvin N. Schoenhals
Chairman and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 15, 2006 BY: /s/ Marvin N. Schoenhals
-----------------------------
Marvin N. Schoenhals
Chairman and President
Date: March 15, 2006 BY: /s/ Charles G. Cheleden
-----------------------------
Charles G. Cheleden
Vice Chairman and Director
Date: March 15, 2006 BY: /s/ John F. Downey
-----------------------------
John F. Downey
Director
Date: March 15, 2006 BY: /s/ Linda C. Drake
-----------------------------
Linda C. Drake
Director
Date: March 15, 2006 BY: /s/ David E. Hollowell
-----------------------------
David E. Hollowell
Director
Date: March 15, 2006 BY: /s/ Joseph R. Julian
-----------------------------
Joseph R. Julian
Director
Date: March 15, 2006 By: /s/Dennis E. Klima
-----------------------------
Dennis E. Klima
Director
Date: March 15, 2006 BY: /s/ Calvert A. Morgan, Jr.
-----------------------------
Calvert A. Morgan, Jr.
Director
Date: March 15, 2006 BY: /s/ Thomas P. Preston
-----------------------------
Thomas P. Preston
Director
Date: March 15, 2006 BY: /s/ Scott E. Reed
-----------------------------
Scott E. Reed
Director
Date: March 15, 2006 BY: /s/ Claibourne D. Smith
-----------------------------
Claibourne D. Smith
Director
Date: March 15, 2006 BY: /s/ Eugene W. Weaver
-----------------------------
Eugene W. Weaver
Director
Date: March 15, 2006 BY: /s/ R. Ted Weschler
-----------------------------
R. Ted Weschler
Director
Date: March 15, 2006 BY: /s/ Stephen A. Fowle
-----------------------------
Stephen A. Fowle
Executive Vice President and
Chief Financial Officer
Date: March 15, 2006 BY: /s/ Robert F. Mack
-----------------------------
Robert F. Mack
Senior Vice President and
Controller