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, 2003
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 of (I.R.S. Employer
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. ( )
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, 2003 was $177,304,000. 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 9, 2004, there were issued and outstanding 7,376,144 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 22, 2004 are incorporated by reference in Part
III hereof. Portions of the 2003 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 2. Properties ......................................................19
Item 3. Legal Proceedings.................................................21
Item 4. Submission of Matters to a Vote of Security Holders...............22
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters............................................22
Item 6. Selected Financial Data...........................................22
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................23
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........23
Item 8. Financial Statements and Supplementary Data.......................23
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..........................................23
Item 9A. Controls and Procedures...........................................23
PART III
Item 10. Directors and Executive Officers of the Registrant................24
Item 11. Executive Compensation............................................24
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Shareholder Matters................................24
Item 13. Certain Relationships and Related Transactions....................25
Item 14. Principal Accountant Fees and Services............................25
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K...25
Signatures........................................................29
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, 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 172 years. WSFS is the largest thrift
institution headquartered in Delaware and among the three or four largest
financial institutions in the state on the basis of total deposits traditionally
garnered in-market. The Corporation's primary market area is the mid-Atlantic
region of the United States which is characterized by a diversified
manufacturing and service economy. The long-term strategy of the Corporation is
to improve its status as a high-performing financial services company by
focusing on its core community banking business.
WSFS provides residential and commercial real estate, commercial and
consumer lending services, as well as retail deposit and cash management
services. Lending activities are funded primarily with retail deposits and
borrowings. The Federal Deposit Insurance Corporation (FDIC) insures deposits to
their legal maximum. WSFS serves customers primarily from its main office and 23
retail banking offices, located in Delaware and southeastern Pennsylvania. The
Company's website is www.wsfsbank.com. The Company makes available on its
website, as soon as reasonably practicable after it electronically files with or
furnishes such material to the Securities and Exchange Commission, its Annual
Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on From 8-K
and amendments to those reports pursuant to Section 13(a) of the Exchange Act.
The Corporation has two consolidated subsidiaries, WSFS and Montchanin
Capital Management, Inc. The Corporation also has one unconsolidated affiliate,
WSFS Capital Trust I. The Corporation has no unconsolidated subsidiaries or
off-balance sheet entities. Fully-owned and consolidated subsidiaries of WSFS
include WSFS Credit Corporation (WCC), which is engaged primarily in indirect
motor vehicle leasing; WSFS Investment 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.
-3-
In 2000, the Board of Directors approved management's plans to discontinue
the operations of WCC. WCC, which had 483 lease contracts and 542 loan contracts
at December 31, 2003, no longer accepts new applications but continues to
service existing loans and leases until their maturity. Management estimates
that substantially all loan and lease contracts will mature by the end of 2004.
In addition to the wholly owned subsidiaries, WSFS had consolidated 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. For a further discussion, see the
Businesses Held-for-Sale section of the MD&A, and Note 3 to the Financial
Statements of the Corporation's 2003 Annual Report to Shareholders (Annual
Report). These divestitures were consistent with strategic actions of WSFS to
simplify its operations and better focus resources and capital on WSFS' core
bank.
COMPETITION
WSFS is the second largest independent full service banking institution
headquartered and operating in Delaware. It primarily attracts deposits through
its system of 23 retail banking offices at December 31, 2003. Nineteen banking
offices are located in northern Delaware's New Castle County, WSFS' primary
market. These banking offices maintain approximately 133,000 total account
relationships with approximately 48,000 total households in New Castle County,
or 25% of all households in New Castle County, Delaware. One banking office is
in the state capital, Dover, located in central Delaware's Kent County and one
banking office is located in southern Delaware's Sussex County. Two other
banking offices are located in southeastern Pennsylvania.
The competition for deposit 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. Loan competition
comes from other insured financial institutions such as commercial banks, thrift
institutions and credit unions.
SUBSIDIARIES
The Corporation has two consolidated subsidiaries, WSFS and Montchanin
Capital Management, Inc. The Corporation also has one unconsolidated affiliate,
WSFS Capital Trust I. The Corporation has no unconsolidated subsidiaries or
off-balance sheet entities. WSFS Capital Trust I was formed in 1998 to issue
Trust Preferred Securities. The Trust invested all of the proceeds from the sale
of the Trust Preferred Securities in Junior Subordinated Debentures of the
Corporation. The Corporation used the proceeds from the Junior Subordinated
Debentures for general corporate purposes, including the redemption of higher
yielding debt. Montchanin was formed in late 2003 to provide asset management
services in the Corporation's primary market area.
At December 31, 2003, WSFS had three wholly-owned, first-tier subsidiaries
WSFS Investment Group, Inc., WSFS Reit, Inc. and WCC. In addition to the wholly
owned subsidiaries, at December 31, 2002, the Corporation consolidated a
non-wholly owned subsidiary, WF. WF was sold in January 2003 and is listed as a
business held-for-sale at December 31, 2002. For a further discussion, see the
businesses held for sale section of the MD&A and Note 3 to the Financial
Statements of the Corporation's 2003 Annual Report.
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
4
2000, the Corporation approved plans to discontinue the operations of WCC. WCC,
which had 483 lease contracts and 542 loan contracts at December 31, 2003, no
longer accepts new applications but continues to service existing loans and
leases until their maturity. Management estimates that substantially all loan
and lease contracts will mature by the end of 2004. For a detailed discussion,
see the Discontinued Operations section of the MD&A and Note 2 to the Financial
Statements of the Corporation's 2003 Annual Report.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
Condensed average balance sheets for each of the last three years and
analyses of net interest income and changes in net interest income due to
changes in volume and rate are presented in "Results of Operations" included in
MD&A.
INVESTMENT ACTIVITIES
The Company's short-term investment portfolio is intended to provide
collateral for borrowings and to meet liquidity requirements. Book values of
investment securities and short-term investments by category, stated in dollar
amounts and as a percent of total assets, follow:
December 31,
--------------------------------------------------------------------------
2003 2002 2001
---------------------- ---------------------- ----------------------
PERCENT Percent Percent
OF of of
AMOUNT ASSETS Amount Assets Amount Assets
------ --------- ------ -------- ------ --------
(Dollars In Thousands)
HELD-TO-MATURITY:
- ----------------
Corporate bonds............................. $ 310 -% $ 310 -% $ 1,372 0.1%
State and political subdivisions ........... 10,100 0.5 10,414 0.6 11,024 0.6
-------- --- -------- --- -------- ---
10,410 0.5 10,724 0.6 12,396 0.7
-------- --- -------- --- -------- ---
AVAILABLE-FOR-SALE:
- ------------------
U.S. Government and agencies................ 105,885 4.8 11,053 0.7 - -
Corporate bonds............................. - - - - 1,798 0.1
-------- --- -------- --- -------- ---
105,885 4.8 11,053 0.7 1,798 0.1
-------- --- -------- --- -------- ---
SHORT-TERM INVESTMENTS:
- ----------------------
Federal funds sold and securities purchased
under agreements to resell.............. - - 64,045 3.8 65,779 3.4
Interest-bearing deposits in other banks (1) 1,095 - 7,476 0.4 28,360 1.5
-------- --- -------- --- -------- ---
1,095 - 71,521 4.2 94,139 4.9
-------- --- -------- --- -------- ---
$117,390 5.3% $ 93,298 5.5% $108,333 5.7%
======== === ======== === ======== ===
<FN>
_____________
(1) Interest-bearing deposits in other banks do not include deposits with a
maturity greater than one year.
</FN>
Proceeds from the sale of investment securities classified as
available-for-sale during 2003 were $21.3 million, with a gain of $200,000
realized on these sales. Municipal bonds totaling $395,000 were called by the
issuers. Proceeds from the sale of investments during 2002 and 2001 were $1.8
million and $644,000 respectively. There was a net loss of $15,000 realized on
sales in 2002 and no net gain or loss realized on sales in 2001. 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.
-5-
The following table sets forth the terms to maturity and related
weighted average yields of investment securities and short-term investments at
December 31, 2003. Substantially all of the related interest and dividends
represent taxable income.
At December 31, 2003
--------------------
Weighted
Average
Amount Yield
------ --------
(Dollars in Thousands)
Held-to-Maturity:
- -----------------
Corporate bonds:
After one but within five years.................................... 124 6.93%
After five but within ten years ................................... 62 7.32
After ten years ................................................... 124 7.52
--------
310 7.24
--------
State and political subdivisions (1):
After one but within five years ................................... 4,512 7.34
After five but within ten years ................................... 1,455 7.50
After ten years ................................................... 4,133 6.49
-------
10,100 7.02
--------
Total debt securities, held-to-maturity ............................. 10,410 7.02
--------
Available-for-Sale:
- -------------------
U.S. Government and agencies:
After one but within five years ................................... 105,885 2.49
--------
105,885 2.49
--------
Total debt securities, available-for-sale ........................... 105,885 2.49
========
Short-term investments:
- ----------------------
Interest-bearing deposits in other banks .......................... 1,095 0.72
--------
Total short-term investments ........................................ 1,095 0.72
--------
$117,390 2.88%
========
<FN>
(1) Yields on state and political subdivisions are not calculated on a
tax-equivalent basis since the effect would be immaterial.
</FN>
In addition to the foregoing investment securities, the Company has
maintained an investment portfolio of mortgage-backed securities, $11.5 million
of which is classified as "trading." At December 31, 2003 mortgage-backed
securities with a book value of $426.2 million were pledged as collateral for
retail customer repurchase agreements, municipal deposits and Federal Home Loan
Bank advances. Accrued interest receivable for mortgage-backed securities was
$2.0 million and $715,000 at December 31, 2003 and 2002, respectively. Proceeds
from the sale of mortgage-backed securities classified as available-for-sale
were $109.5 million in 2003, resulting in a net loss of $109,000. Proceeds from
the sale of mortgage-backed securities classified as held-for-maturity (HTM)
were $14.8 million, resulting in a net gain of $424,000. These HTM securities
were sold after the Corporation collected more than 85% of the principal
outstanding at the time of acquisition, therefore these sales are considered
maturities in accordance with Statement of Financial Accounting Standards (SFAS)
No. 115, Accounting for Certain Investments in Debt and Equity Securities.
-6-
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,
----------------------------------------------------------------------
2003 2002 2001
------------------ -------------------- -------------------
(Dollars in Thousands)
Amount Rate Amount Rate Amount Rate
------ ------ ------ ------ ------ -----
HELD-TO-MATURITY:
Collateralized mortgage obligations ........ $ 1,785 6.32% $ 13,881 6.90% $ 31,889 6.89%
FNMA........................................ - - 11,614 5.15 18,355 5.57
FHLMC....................................... 29 8.13 13,662 5.53 20,041 5.70
--------- ---- -------- ---- -------- ----
$ 1,814 6.18% $ 39,157 5.90% $ 70,285 6.20%
========= ==== ======== ==== ======== ====
Available-for-Sale:
Collateralized mortgage obligations......... 390,467 4.29% $ 84,735 4.68% $260,784 5.51%
FNMA........................................ 70,345 3.90 13,346 4.74 15,276 5.45
FHLMC....................................... 37,936 3.70 - - 15,138 4.84
GNMA........................................ 18,463 4.28 - - 241 6.89
--------- ---- -------- ---- -------- ----
$ 517,211 4.19% $ 98,081 4.69% $291,439 5.47%
========= ==== ======== ==== ======== ====
Trading:
- -------
Collateralized mortgage obligations......... $ 11,527 4.14% $ 11,000 4.42% $ - -%
========= ==== ======== ==== ======== ======
CREDIT EXTENSION ACTIVITIES
Traditionally, the majority of a typical thrift institution's loan
portfolio has consisted of first mortgage loans on residential properties.
However, as a result of various legislative and regulatory changes since 1980,
the commercial and consumer lending powers of WSFS have increased substantially.
WSFS' current lending activity is more focused on lending to small- and
medium-sized businesses and consumers in and around the state of Delaware.
-7-
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 Company had no concentrations of loans exceeding 10% of total loans at
December 31, 2003:
December 31,
-----------------------------------------------------------------
2003 2002 2001
------------------ ----------------- --------------------
Types of Loans AMOUNT PERCENT Amount Percent Amount Percent
- -------------- ------ ------- ------ ------- ------- -------
(Dollars in Thousands)
Residential real estate (1)............ $ 458,408 35.1% $ 541,465 45.2% $ 487,845 43.7%
Commercial real estate:
Commercial mortgage.................... 335,050 25.7 228,089 19.1 208,286 18.7
Construction........................... 54,742 4.2 59,555 5.0 48,002 4.3
---------- ----- ---------- ----- ---------- -----
Total commercial real estate........... 389,792 29.9 287,644 24.1 256,288 23.0
Commercial............................. 292,516 22.4 209,567 17.5 197,790 17.7
Consumer............................... 186,133 14.3 181,851 15.2 198,366 17.8
---------- ----- ---------- ----- ---------- -----
Gross loans............................ 1,326,849 101.7 1,220,527 102.0 1,140,289 102.2
Less:
(Deferred fees) unearned income........ (414) - 2,043 0.2 3,320 0.3
Allowance for loan losses.............. 22,386 1.7 21,452 1.8 21,597 1.9
---------- ----- ---------- ----- ---------- -----
Net loans.............................. $1,304,877 100.0% $1,197,032 100.0% $1,115,372 100.0%
========== ===== ========== ===== ========== =====
December 31,
---------------------------------------------
2000 1999
------------------- -------------------
Types of Loans Amount Percent Amount Percent
- -------------- ------ ------- ------ -------
Residential real estate (1)............ $440,136 45.7% $393,243 45.7%
Commercial real estate:
Commercial mortgage.................... 190,707 19.8 201,559 23.4
Construction........................... 30,183 3.1 21,561 2.5
-------- ----- -------- -----
Total commercial real estate........... 220,890 22.9 223,120 25.9
Commercial............................. 151,887 15.7 115,931 13.5
Consumer............................... 175,268 18.2 154,857 18.0
-------- ----- -------- -----
Gross loans............................ 988,181 102.5 887,151 103.1
Less:
(Deferred fees) unearned income........ 3,268 0.3 4,355 0.5
Allowance for loan losses.............. 21,423 2.2 22,223 2.6
-------- ----- -------- -----
Net loans.............................. $963,490 100.0% $860,573 100.0%
======== ===== ======== =====
<FN>
(1) Includes $1,465, $121,349, $84,691, $23,274, and $24,572 of residential
mortgage loans held-for-sale at December 31, 2003, 2002, 2001, 2000, and
1999, respectively.
</FN>
-8-
The following table sets forth information as of December 31, 2003
regarding the amount of loans maturing in the Company's portfolios, including
scheduled repayments of principal based on contractual terms to maturity. In
addition, the table sets forth the 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 YEARS FIVE YEARS TOTAL
--------- ---------- ---------- -------
(IN THOUSANDS)
Real estate loans (1)..................... $ 63,540 $ 262,105 $ 466,348 $ 791,993
Construction loans........................ 28,487 25,071 1,184 54,742
Commercial loans.......................... 110,589 113,067 68,860 292,516
Consumer loans ........................... 63,538 57,128 65,467 186,133
----------- ----------- ---------- -----------
$ 266,154 $ 457,371 $ 601,859 $ 1,325,384
=========== =========== ========== ===========
Rate sensitivity:
Fixed................................... $ 40,511 $ 162,538 $ 271,674 $ 474,723
Adjustable 225,643 294,833 330,185 850,661
----------- ----------- ---------- -----------
Gross loans............................. $ 266,154 $ 457,371 $ 601,859 $ 1,325,384
=========== =========== ========== ===========
<FN>
(1) Includes commercial mortgage loans; does not include loans held-for-sale.
</FN>
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 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, 2003, the balance of all such loans was
approximately $18.6 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 Company 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 Company also has limited recourse exposure under
certain investor contracts in the event a borrower prepays a loan in total
within a specified period after sale, typically one year. 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, 2003, $95.0 million was
committed for construction loans, of which $54.7 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. WSFS intends to continue originating
commercial loans to small- and medium-sized businesses 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.
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, 2003, WSFS
had a $35.3 million loan to refinance an employee stock ownership plan ("ESOP")
loan of a company. Over 80% of the loan is secured by discounted U.S. Treasury
securities. At December 31, 2003, no borrower had collective outstandings
exceeding the above limits.
CONSUMER LENDING.
The primary consumer credit products of the Company are equity-secured
installment loans and home equity lines of credit. At December 31, 2003, WSFS
had equity-secured installment loans totaling $124.4 million, which represented
67% 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, 2003, WSFS had extended $101.1 million in home equity
lines of credit, of which $39.9 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. Although home equity lines of
credit expose the Company to the risk that falling collateral values may leave
it inadequately secured, the Company has not had any significant adverse
experience to date.
-11-
The table below sets forth consumer loans by type, in amounts and percentages at
the dates indicated.
December 31,
-----------------------------------------------------------------------------
2003 2002 2001
--------------------- -------------------- -------------------
(Dollars in Thousands)
AMOUNT PERCENT Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
Equity secured installment loans $124,411 66.9% $ 123,655 68.1% $125,597 63.3%
Home equity lines of credit.... 39,858 21.4 31,512 17.3 24,161 12.2
Automobile..................... 9,137 4.9 11,728 6.4 11,737 5.9
Unsecured lines of credit...... 10,506 5.6 12,402 6.8 20,156 10.2
Other.......................... 2,221 1.2 2,554 1.4 16,715 8.4
-------- ----- --------- ----- -------- -----
Total consumer loans .......... $186,133 100.0% $ 181,851 100.0% $198,366 100.0%
======== ===== ========= ===== ======== =====
December 31,
--------------------------------------------------
2000 1999
--------------------- ---------------------
Amount Percent Amount Percent
------ ------- ------- -------
Equity secured installment loans $ 113,686 64.8% $ 97,491 63.0%
Home equity lines of credit.... 24,408 13.9 26,446 17.1
Automobile..................... 9,762 5.6 9,800 6.3
Unsecured lines of credit...... 16,739 9.6 11,370 7.3
Other.......................... 10,673 6.1 9,750 6.3
---------- ------- -------- ------
Total consumer loans .......... $ 175,268 100.0% $154,857 100.0%
========= ===== ======== =====
-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 2003, the Company originated $317 million of residential real
estate loans. This compares to originations of $2.0 billion in 2002 of which WF
represented $1.8 billion. 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 $128
million for the year ended December 31, 2003 and $62 million for 2002. In the
past WSFS also periodically purchased residential mortgages from WF with the
intention of holding such loans in its portfolio. These purchases totaled zero
in 2003 and $19.1 million in 2002. Residential real estate loan sales totaled
$116 million in 2003, $1.8 billion in 2002 and $566 million in 2001, of which WF
represented $1.7 billion and $501 million in 2002 and 2001, respectively. While
WSFS generally intends to hold loans for the foreseeable future, WSFS sells
certain newly originated fixed-rate mortgage loans in the secondary market to
control the interest rate sensitivity of its balance sheet. The Corporation
holds for investment certain of its fixed-rate mortgage loans, with terms under
30 years, consistent with current asset/liability management strategies.
At December 31, 2003, WSFS serviced approximately $245 million of
residential loans for others compared to $234 million at December 31, 2002. The
Company also services residential loans for its portfolio totaling $413 million
and $357 million at December 31, 2003 and 2002, 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 2003, WSFS originated $245 million of commercial and
commercial real estate loans compared with $198 million in 2002. 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 2003, consumer loan originations amounted to $41 million compared
to $86 million in 2002.
All loans to one borrowing relationship exceeding $2 million must be
approved by the senior management loan committee. The Executive Committee of the
Board of Directors approves the minutes of the management loan committee
meetings and 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.
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,
residential and commercial real estate loans. Additionally, the Bank collects
fees related to existing loans which include prepayment charges, late charges
and assumption fees.
-13-
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
accounting principles generally accepted in the United States of America and
are reflected in interest income. Those fees represented an immaterial amount
of interest income during the three years ended December 31, 2003. Loan fees
other than those considered adjustments of yield are reported as loan fee
income, a component of noninterest income.
LOAN LOSS EXPERIENCE, PROBLEM ASSETS AND DELINQUENCIES
The Company's results of operations can be negatively impacted by
nonperforming assets which include nonaccruing loans, nonperforming real estate
investments and assets acquired through foreclosure. Nonaccruing loans are those
on which the accrual of interest has ceased. Loans are placed on nonaccrual
status immediately if, in the opinion of management, collection is doubtful, or
when principal or interest is past due 90 days or more and collateral is
insufficient to cover principal and interest. Interest accrued, but not
collected at the date a loan is placed on nonaccrual status, is reversed and
charged against interest income. In addition, the amortization of net deferred
loan fees is suspended when a loan is placed on nonaccrual status. Subsequent
cash receipts are applied either to the outstanding principal balance or
recorded as interest income, depending on management's assessment of the
ultimate collectibility of principal and interest.
The Company 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 Company's loan and investment in real estate portfolios and reports such
information to the Credit Policy Committee, the Audit Committee of the Board of
Directors and the Controller's Department.
SOURCES OF FUNDS
WSFS funds its operations through retail and wholesale deposit growth
as well as through various borrowing sources, including repurchase agreements,
federal funds purchased and advances from the Federal Home Loan Bank (FHLB) of
Pittsburgh. Loan repayments and investment maturities also provide sources of
funds. Loan repayments and investment maturities provide a relatively stable
source of funds while certain deposit flows tend to be more susceptible to
market conditions. Borrowings are used to fund wholesale asset growth,
short-term funding of lending activities when loan demand exceeds projections,
or when deposit inflows or outflows are less than or greater than expected. On a
long-term basis, borrowings may be used to match against specific loans or
support business expansion.
DEPOSITS. WSFS offers various deposit programs to its customers,
including savings accounts, demand deposits, interest-bearing demand deposits,
money market deposit accounts and certificates of deposits. 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 23 retail banking offices at December 31, 2003. Nineteen banking
offices are located in northern Delaware's New Castle County, WSFS' primary
market. These banking offices maintain approximately 133,000 total account
relationships with approximately 48,000 total households, or 25% of all
households in New Castle County, Delaware. One banking office is in the state
capital, Dover, located in central Delaware's Kent County. One banking office is
in Rehoboth located in Delaware's Sussex County and two other banking offices
are located in southeastern Pennsylvania.
-14-
The following table sets forth the amount of certificates of deposit of
$100,000 or more by remaining maturity at the December 31, 2003:
DECEMBER 31,
MATURITY PERIOD 2003
- --------------- -------------
(IN THOUSANDS)
Less than 3 months...................... $54,411
Over 3 months to 6 months............... 7,259
Over 6 months to 12 months.............. 7,872
Over 12 months.......................... 10,808
--------
$80,350
========
BORROWINGS. The Company utilizes several borrowing sources to fund
operations. As a member of the FHLB of Pittsburgh, WSFS is authorized to apply
for advances on the security of the Bank's capital stock ownership in the FHLB
and certain of the Bank's residential mortgages and other assets (principally
securities which are obligations of or guaranteed by the United States
Government and mortgage-backed securities), provided certain standards related
to creditworthiness have been met. As a member institution, WSFS is required to
hold capital stock in the FHLB of Pittsburgh in an amount at least equal to 5%
of the Bank's outstanding advances plus 0.7% of the Bank's unused borrowing
capacity.
WSFS also sells securities under agreements to repurchase with various
brokers as an additional source of funding. When entering into these
transactions, WSFS is generally required to pledge either government securities
or mortgage-backed securities as collateral for the borrowings.
In 1998, the Company issued $50.0 million in Trust Preferred securities
due December 11, 2028. For a discussion of the Trust Preferred securities see
Note 11 of the Consolidated Financial Statements of the Corporations 2003 Annual
Report.
PERSONNEL
As of December 31, 2003 the Registrant had 431 fulltime equivalent
Associates (employees). The Associates are not represented by a collective
bargaining unit. Management believes its relationship with its Associates is
good.
REGULATION
REGULATION OF THE COMPANY
SARBANES-OXLEY ACT OF 2002. On July 30, 2002, President Bush 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 may increase the Corporation's expenses.
-15-
GENERAL. The Company is a registered savings and loan holding company
and is subject to Office of Thrift Supervision (OTS) regulation, examination,
supervision and reporting requirements. As a subsidiary of a holding company,
WSFS is subject to certain restrictions in its dealings with the Company and
other affiliates.
ACTIVITIES RESTRICTIONS. Because the Company became a unitary savings
and loan holding company prior to May 4, 1999, there generally are no
restrictions on its activities. If the Company were to acquire another thrift
and operate it as a separate entity, it would become subject to the activities
restrictions on multiple holding companies. Among other things, no multiple
savings and loan holding company or subsidiary thereof which is not a savings
association may commence, or continue after a limited period of time after
becoming a multiple savings and loan holding company or subsidiary thereof, any
business activity other than: (i) furnishing or performing management services
for a subsidiary savings association; (ii) conducting an insurance agency or
escrow business; (iii) holding, managing, or liquidating assets owned by or
acquired from a subsidiary savings institution; (iv) holding or managing
properties used or occupied by a subsidiary savings institution; (v) acting as
trustee under deeds of trust; (vi) those activities authorized by regulation as
of March 5, 1987 to be engaged in by multiple holding companies; or (vii) unless
the Director of OTS by regulation prohibits or limits such activities for
savings and loan holding companies, those activities authorized by the Board of
Governors of the Federal Reserve System (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.
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 Company) and any companies which are
controlled by such parent holding company are affiliates of the savings
association. Generally, Sections 23A and 23B (i) limit the extent to which the
savings institution or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such institution's capital
stock and surplus, and limit the aggregate of all such transactions with all
affiliates to an amount equal to 20% of such capital stock and surplus and (ii)
require that all such transactions be on terms substantially the same, or at
least as favorable, to the institution or subsidiary as those provided to a
non-affiliate. The term "covered transaction" includes the making of loans,
purchase of assets, issuance of a guarantee and similar types of transactions.
In addition to the restrictions imposed by Sections 23A and 23B, no savings
association may (i) lend or otherwise extend credit to an affiliate that engages
in any activity impermissible for bank holding companies, or (ii) purchase or
invest in any stocks, bonds, debentures, notes or similar obligations of any
affiliate, except for affiliates which are subsidiaries of the savings
association. Savings associations are also prohibited from extending credit,
offering services, or fixing or varying the consideration for any extension of
credit or service on the condition that the customer obtain some additional
service from the institution or certain of its affiliates or that the customer
not obtain services from a competitor of the institution, subject to certain
limited exceptions.
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.
-16-
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 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
-17-
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, 2003, 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,
2003, 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, stock repurchases 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. WSFS may be charged semi-annual premiums by the FDIC
for federal insurance on its insurable deposit accounts up to applicable
regulatory limits. The FDIC may establish an assessment rate for deposit
insurance premiums which protects the insurance fund and considers the fund's
operating expenses, case resolution expenditures, income and effect of the
assessment rate on the earnings and capital of members.
The assessment rate for an insured depository institution depends on
the assessment risk classification assigned to the institution by the FDIC which
is determined by the institution's capital level and supervisory evaluations.
Institutions are assigned to one of three capital groups -- well-capitalized,
adequately-capitalized or undercapitalized. Within each capital group,
institutions will be assigned to one of three subgroups on the basis of
supervisory evaluations by the institution's primary supervisory authority and
such other information as the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
fund.
Because the Bank Insurance Fund (BIF) achieved its statutory reserve
ratio of 1.25% of insured deposits, the FDIC has eliminated deposit insurance
premiums for most BIF members. In the event that the BIF should fail to meet its
statutory reserve ratio, the FDIC would be required to set semi-annual
assessment rates for BIF members that are sufficient to increase the reserve
ratio to 1.25% within one year or in accordance with such other schedule that
the FDIC adopts by regulation to restore the reserve ratio in not more than 15
years. The FDIC continues to assess BIF member institutions to fund interest
payments on certain bonds issued by the Financing Corporation (FICO), an agency
of the federal government established to help fund takeovers of insolvent
thrifts. Until December 31, 1999, BIF members were assessed at approximately
one-fifth the rate at which Savings Association Insurance Fund (SAIF) members
were assessed. After December 31, 1999, BIF and SAIF members are being assessed
at the same rate for debt service on the FICO bonds.
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
-18-
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, 2003
WSFS met its reserve requirements.
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, 2003.
NET BOOK VALUE
OF PROPERTY
OWNED/ DATE LEASE OR LEASEHOLD
LOCATION LEASED EXPIRES IMPROVEMENTS (1) DEPOSITS
- -------- ------ ------- ---------------- --------
(IN THOUSANDS)
WSFS:
- ----
Main Office (1)(2) Owned $986 $242,471
9th & Market Streets
Wilmington, DE 19899
Union Street Branch Leased 2008 83 48,324
3rd & Union Streets
Wilmington, DE 19805
Trolley Square Branch Leased 2006 6 24,433
1711 Delaware Avenue
Wilmington, DE 19806
Fairfax Shopping Center Branch Leased 2008 5 68,761
2005 Concord Pike
Wilmington, DE 19803
Branmar Plaza Shopping Center Branch Leased 2008 7 60,281
1812 Marsh Road
Wilmington, DE 19810
Prices Corner Shopping Center Branch Leased 2008 24 84,915
3202 Kirkwood Highway
Wilmington, DE 19808
Pike Creek Shopping Center Branch Leased 2005 29 65,365
New Linden Hill & Limestone Roads
Wilmington, DE 19808
University Plaza Shopping Center Branch Leased 2008 7 41,947
I-95 & Route 273
Newark, DE 19712
College Square Shopping Center Branch (4) Leased 2007 239 72,027
Route 273 & Liberty Avenue
Newark, DE 19711
Airport Plaza Shopping Center Branch Leased 2013 23 64,545
144 N. DuPont Hwy.
New Castle, DE 19720
Stanton Branch Leased 2006 84 10,493
Inside ShopRite at First State Plaza
1600 W. Newport Pike
Wilmington, DE 19804
Glasgow Branch Leased 2008 131 17,225
Inside Genuardi's at Peoples Plaza
Routes 40 & 896
Newark, DE 19804
Middletown Square Shopping Center Leased 2004 19 16,012
723 N. Broad St.
Middletown Square
Middletown, DE 19709
Dover Branch Leased 2005 53 13,779
Inside Metro Food Market
Rt 134 & White Oak Road
Dover, DE 19901
-19-
NET BOOK VALUE
OF PROPERTY
OWNED/ DATE LEASE OR LEASEHOLD
LOCATION LEASED EXPIRES IMPROVEMENTS (1) DEPOSITS
-------- ------ ------- ---------------- --------
(IN THOUSANDS)
WSFS (CONTINUED...):
------------------
Glen Eagle Branch Leased 2008 167 6,496
Inside Genaurdi's Family Market
475 Glen Eagle Square
Glen Mills, PA 19342
University of Delaware-Trabant University Center Leased 2008 156 8,327
17 West Main Street
Newark, DE 19716
Brandywine Branch Leased 2004 145 18,314
Inside Genaurdi's Family Market
2522 Foulk Road
Wilmington, DE 19810
Wal-Mart Branch Leased 2004 249 4,897
Route 40 & Wilton Boulevard
New Castle, DE 19720
Operations Center Owned 954 N/A
2400 Philadelphia Pike
Wilmington, DE 19703
Longwood Branch Leased 2005 165 4,358
830 E. Baltimore Pike
E. Marlborough, PA 19348
Holly Oak Branch Leased 2005 132 20,701
Inside Superfresh
2105 Philadelphia Pike
Claymont, DE 19703
Elkins Park Branch (5) Leased 2005 - -
More Shopping Center
7300 Old York Road
Elkins Park, PA 19027
Hockessin Branch Leased 2015 703 27,780
7450 Lancaster Pike
Wilmington, DE 19707
Dewey Beach-Loan Office Leased 2004 12 N/A
Ocean Winds Village
Dewey Beach, DE 19971
Middletown Crossing Shopping Center (6) Leased 2017 - N/A
Route 299 and Silver Lake Road
Middletown, DE 19709
Fox Run Shopping Center Leased 2006 1,212 663
Bear, DE
Rehoboth (7) Leased 2029 - N/A
Lighthouse Plaza
Route #1
Rehoboth, DE 19971
Rehoboth Leased 2004 20 1,219
9 Lighthouse Plaza, Route #1
Rehoboth, DE 19971
Loan Operations Leased 2007 219 N/A
30 Blue Hen Drive, Suite 200
Newark, DE 19713
-20-
NET BOOK VALUE
OF PROPERTY
OWNED/ DATE LEASE OR LEASEHOLD
LOCATION LEASED EXPIRES IMPROVEMENTS (1) DEPOSITS
-------- ------ ------- ---------------- --------
(IN THOUSANDS)
WSFS REIT, INC. Leased 2004 - -
---------------
227 East Main Street
Elkton, MD 21921
GREENVILLE, DE PROPERTY (3) Owned - 1,998 N/A
----------------------------
WILMINGTON GATEWAY (3)
500 Delaware Ave. Owned - 5,317 N/A
Wilmington, DE 19801 ---------
$ 923,333
=========
<FN>
(1) The net book value of all the Company's investment in premises and
equipment totaled $13.3 million at December 31, 2003.
(2) Includes location of executive offices.
(3) The total includes building and building depreciation listed under Real
Estate Held for Investment.
(4) Includes the Company's Education and Development Center.
(5) Branch deposits were sold on September 30, 2002. Office is sublet to
independent third-party.
(6) Construction to begin in 2005
(7) Construction to begin in 2004
</FN>
ITEM 3. LEGAL PROCEEDINGS
- -------------------------
On March 25, 2003, a Demand for Arbitration (the "Demand") was filed
against Wilmington Savings Fund Society, FSB (the "Bank"), the Company's
wholly-owned subsidiary, in the Northeast Case Management Center of the American
Arbitration Association by American Homestead Mortgage Corp. ("AHMC"). AHMC
sought an award in excess of $8.0 million under a 1994 agreement pursuant to
which the Bank purchased certain reverse mortgages from AHMC. AHMC claimed it
was entitled to a portion of the net cash flow received by the Bank once the
Bank achieved a specified minimum return on its investment. The Company believed
that it achieved the specified minimum return on its investment when it sold
such loans as a part of the sale of a much larger portfolio of reverse mortgage
loans in November 2002. The dispute related to the price at which the AHMC
portion of the portfolio of reverse mortgage loans was sold. The Company
believed that AHMC was entitled to less than $2.0 million under the terms of the
1994 agreement with AHMC, based on the actual price at which such loans were
sold, currently, and potentially more at a later date when certain non-cash
proceeds from the sale were to be received in cash. The Company had accrued for
its expected payments under its contract with AHMC.
On December 29, 2003, the Bank's position in connection with the Demand was
upheld. The Arbitrator agreed with the Bank's position and awarded $1.99
million, plus interest, and any future "residual interest" owning to AHMC under
the Bank's 1994 agreement. On December 31, 2003, the Bank and AHMC entered into
a settlement agreement and release (the "Settlement Agreement"). In the
Settlement Agreement, the Company agreed to pay AHMC $2.5 million in final
settlement of all amounts, current and future, AHMC would be entitled to receive
under the 1994 agreement and the Arbitration award. Because the Company had
accrued for its expected payments under its contract with AHMC and related
costs, the terms of the Settlement Agreement did not have a material impact on
the financial condition and results of operations of the Company for 2003.
-21-
There are no material legal proceedings to which the Company or WSFS is a
party or to which any of its property is subject except as discussed in Note 16
to the Consolidated Financial Statements.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
No matter was submitted to a vote of the stockholders during the fourth
quarter of the fiscal year ended December 31, 2003 through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------------------------------------------------------------------------------
The information contained under the section captioned "Market for
Registrants Common Equity and Related Stockholder Matters" in the 2003 Annual
Report to Stockholders (the "Annual Report") is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------
2003 2002 2001 2000 1999
---------- ---------- ---------- --------- ----------
(Dollars in Thousands, Except Per Share Data)
At December 31,
- --------------
Total assets ..................................... $2,207,077 $1,705,000 $1,913,920 $1,739,316 $1,751,037
Net loans (1) .................................... 1,304,877 1,197,032 1,115,372 963,491 860,573
Investment securities (2) ........................ 116,295 21,777 14,194 29,740 37,473
Investment in reverse mortgages, net ............. 193 1,131 33,939 33,683 28,103
Other investments ................................ 44,771 93,500 122,889 39,318 36,526
Mortgage-backed securities (2) ................... 530,552 148,238 361,724 339,718 447,749
Deposits ......................................... 923,333 898,396 1,146,117 1,121,591 910,090
Borrowings (3) ................................... 1,031,058 466,006 595,480 443,638 672,465
Trust preferred borrowings ....................... 50,000 50,000 50,000 50,000 50,000
Stockholders' equity ............................. 187,992 182,672 100,003 97,146 96,153
Number of full-service branches (4) .............. 23 21 27 28 24
For the Year Ended December 31,
- ------------------------------
Interest income .................................. $ 89,299 $ 94,703 $ 101,338 $ 120,899 $ 108,012
Interest expense ................................. 31,301 33,434 46,597 59,499 58,840
Noninterest income ............................... 26,166 124,060 21,125 12,926 11,578
Noninterest expenses ............................. 49,417 51,617 47,689 45,278 40,724
Income from continuing operations ................ 21,233 88,018 17,762 18,457 18,587
Net income ....................................... 63,022 101,141 17,083 11,019 19,709
Earnings per share:
Basic:
Income from continuing operations............. $ 2.73 $ 9.69 $ 1.85 $ 1.73 $ 1.64
Net income .................................... 8.11 11.13 1.78 1.03 1.74
Diluted:
Income from continuing operations ............. 2.58 9.34 1.84 1.73 1.63
Net income .................................... 7.65 10.73 1.77 1.03 1.73
Interest rate spread ............................. 3.02% 4.97% 4.64% 5.01% 3.90%
Net interest margin .............................. 3.29 4.93 4.51 4.77 3.65
Return on average equity (5) ..................... 10.60 70.69 17.69 18.85 20.89
Return on average assets (5) ..................... 1.09 6.22 1.33 1.34 1.29
Average equity to average assets (5) ............. 10.28 8.79 7.50 7.12 6.17
<FN>
(1) Includes loans held-for-sale.
-22-
(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 two branches in 2003, transferred six branches to other
financial institutions in 2002, closed one branch in 2001 and opened four
branches in both 2000 and 1999.
(5) Based on continuing operations.
</FN>
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
- --------------------------------
The Company's management evaluated, with the participation of the
Company's Chief Executive Officer and Chief Financial Officer, the effectiveness
of the Company'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 Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company 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.
There were no changes in the Company's internal control over financial
reporting that occurred during the Company's last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
-23-
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 22, 2004 (the "Proxy Statement") which was
filed with the Securities and Exchange Commission on March 12, 2004, is
incorporated herein by reference.
The Company 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 Company's website at www.wsfsbank.com.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information which appears under the heading "Proposal 1 - 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 Company knows of no arrangements, including any pledge by
any person of securities of the Company, 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
-24-
Set forth below is information as of December 31, 2003 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) 938,264 $ 19.49 440,805
Equity compensation plans
not approved by stockholders n/a n/a n/a
------- ------- -------
TOTAL 938,264 $ 19.49 440,805
======= ======= =======
<FN>
(1) Plans approved by stockholders include the 1986 Stock Option Plan and the
1997 Stock Option Plan, as amended.
</FN>
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 "Proposal 2 - Ratification of the Appointment of
Independent Auditors" in the Proxy Statement.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
(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, 2003 and 2002, 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, 2003, together with the related notes and the independent
auditors' report of KPMG, LLP, independent accountants.
2. Schedules omitted as they are not applicable.
-25-
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.
4.1 Certificate of Trust of WSFS Capital Trust I, incorporated
herein by reference to Exhibit 4.2 to the Registration
Statement on Form S-3, Registration Nos. 333-56015,
333-56015-01 and 333-56015-02 filed by WSFS Financial
Corporation, WSFS Capital Trust I and WSFS Capital
Trust II (the "Registration Statement").
4.2 Trust Agreement of WSFS Capital Trust I, incorporated
herein by reference to Exhibit 4.4 to the Registration
Statement.
4.3 Amended and Restated Trust Agreement of WSFS Capital I,
incorporated herein by reference to Exhibit 4.1 to WSFS
Financial Corporation's Current Report on Form 8-K/A,
filed with the Securities and Exchange Commission on
November 20, 1998 ("Form 8-K/A").
4.4 Form of Trust Preferred Security Certificate of WSFS
Capital Trust I, incorporated herein by reference to
Exhibit 4.3 to the Form 8-K/A.
4.5 Trust Preferred Securities Guarantee Agreement, incorporated
herein by reference to the Form 8-K/A filed with the
Securities and Exchange Commission on November 20, 1998.
4.6 Form of Junior Subordinated Indenture between WSFS Financial
Corporation and Wilmington Trust Company, as trustee,
incorporated herein by reference to Exhibit 4.1 to the
Registration Statement.
4.7 Officers' Certificate and Company Order for Floating Rate
Junior Subordinated Debentures due December 1, 2028,
incorporated herein by reference to Exhibit 4.2 to the Form
8-K/A.
4.8 Form of Floating Rate Junior Subordinated Debenture,
incorporated herein by reference to Exhibit 4.5 of the
Form 8-K/A.
-26-
4.9 First Amendment to the Amended and Restated Trust Agreement
of WSFS Capital Trust I, incorporated herein by reference to
the Form 8 A/A filed with the Securities and Exchange
Commission on December 13, 1999.
10.1 Wilmington Savings Fund Society, Federal Savings Bank
1986 Stock Option Plan, as amended is incorporated herein
by reference to Exhibit 4.1 of Registrant's Registration
Statement on Form S-8 (File No. 33-56108) filed with the
Commission on December 21, 1992.
10.2 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.
10.3 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.
10.4 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
10.4.1 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 10.4.1 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 2001.
13 Portions of the Corporation's 2003 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.
-27-
(b) Reports on 8-K:
On October 23, 2003, the Company filed a Form 8-K pursuant to items 7 and
12 to announce earnings for the quarter ended September 30, 2003.
-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 12, 2004 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 12, 2004 BY: /s/ Marvin N. Schoenhals
-----------------------------------------
Marvin N. Schoenhals
Chairman and President
Date: March 12, 2004 BY: /s/ Charles G. Cheleden
-----------------------------------------
Charles G. Cheleden
Vice Chairman and Director
Date: March 12, 2004 BY: /s/ John F. Downey
----------------------------------------
John F. Downey
Director
Date: March 12, 2004 BY: /s/ Linda C. Drake
----------------------------------------
Linda C. Drake
Director
Date: March 12, 2004 BY: /s/ David E. Hollowell
-----------------------------------------
David E. Hollowell
Director
Date: March 12, 2004 BY: /s/ Joseph R. Julian
-----------------------------------------
Joseph R. Julian
Director
-29-
Date: March 12, 2004 BY: /s/ Thomas P. Preston
-----------------------------------------
Thomas P. Preston
Director
Date: March 12, 2004 BY: /s/ Claibourne D. Smith
-----------------------------------------
Claibourne D. Smith
Director
Date: March 12, 2004 BY: /s/ Eugene W. Weaver
-----------------------------------------
Eugene W. Weaver
Director
Date: March 12, 2004 BY: /s/ R. Ted Weschler
-----------------------------------------
R. Ted Weschler
Director
Date: March 12, 2004 BY: /s/ Dale E. Wolf
-----------------------------------------
Dale E. Wolf
Vice Chairman and Director
Date: March 12, 2004 BY: /s/ Mark A. Turner
-----------------------------------------
Mark A. Turner
Chief Operating Officer and
Chief Financial Officer
Date: March 12, 2004 BY: /s/ Robert F. Mack
-----------------------------------------
Robert F. Mack
Senior Vice President and Controller
-30-