SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|☒||ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934|
For the fiscal year ended December 31, 2019
|☐||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 001-35638
|WSFS FINANCIAL CORPORATION|
|(Exact Name of Registrant as Specified in its Charter)|
|(State or other Jurisdiction of Incorporation or Organization)|| ||(I.R.S. Employer Identification No.)|
500 Delaware Avenue, Wilmington, Delaware
|(Address of Principal Executive Offices)|| ||(Zip Code)|
Registrant’s Telephone Number, Including Area Code: (302) 792-6000
|Securities registered pursuant to Section 12(b) of the Act:|
|Title of Each Class||Trading Symbol(s)||Name of Each Exchange on Which Registered|
|Common Stock, $0.01 par value||WSFS||The Nasdaq Stock Market LLC|
|Securities registered pursuant to Section 12(g) of the Act: None|
Indicate by check if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes x No ☐
Indicate by check if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No x
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 12 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 whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|Large accelerated filer|| ||x|| ||Accelerated filer|| ||☐|
|Non-accelerated filer|| ||☐ || ||Smaller reporting company|| ||☐|
|Emerging growth company||☐|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x
The aggregate market value of the voting and non-voting common equity held by nonaffiliates of the registrant, based on the closing price of the registrant’s common stock as quoted on Nasdaq as of June 30, 2019, was $2,168,596,590. For purposes of this calculation only, affiliates are deemed to be directors, executive officers and beneficial owners of greater than 10% of the registrant's outstanding common stock.
As of February 21, 2020, there were issued and outstanding 51,056,811 shares of the registrant’s common stock, par value $0.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held on April 23, 2020 are incorporated by reference in Part III hereof.
WSFS FINANCIAL CORPORATION
TABLE OF CONTENTS
This Annual Report on Form 10-K, and exhibits thereto, contains estimates, predictions, opinions, projections and other “forward-looking statements” as that phrase is defined in the Private Securities Litigation Reform Act of 1995. Such statements include, without limitation, references to the Company’s predictions or expectations of future business or financial performance as well as its goals and objectives for future operations, financial and business trends, business prospects and management’s outlook or expectations for earnings, revenues, expenses, capital levels, liquidity levels, asset quality or other future financial or business performance, strategies or expectations. The words “believe,” “expect,” “anticipate,” “plan,” “estimate,” “target,” “project” and similar expressions, among others, generally identify forward-looking statements. Such forward-looking statements are based on various assumptions (some of which may be beyond the Company’s control) and are subject to risks and uncertainties (which change over time) and other factors which could cause actual results to differ materially from those currently anticipated. Such risks and uncertainties include, but are not limited to:
•difficult market conditions and unfavorable economic trends in the United States generally, and particularly in the markets in which the Company operates and in which its loans are concentrated, including declines in housing markets, an increase in unemployment levels and slowdowns in economic growth;
•the Company’s level of nonperforming assets and the costs associated with resolving problem loans including litigation and other costs;
•possible additional loan losses and impairment of the collectability of loans;
•changes in market interest rates, which may increase funding costs and reduce earning asset yields and thus reduce margin;
•the impact of changes in interest rates and the credit quality and strength of underlying collateral and the effect of such changes on the market value of the Company’s investment securities portfolio;
•the credit risk associated with the substantial amount of commercial real estate, construction and land development and commercial and industrial loans in our loan portfolio;
•the extensive federal and state regulation, supervision and examination governing almost every aspect of the Company’s operations including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), the Economic Growth, Regulatory Relief, and Consumer Protection Act (which amended the Dodd-Frank Act), and the rules and regulations issued in accordance therewith and potential expenses associated with complying with such regulations;
•the Company’s ability to comply with applicable capital and liquidity requirements (including the finalized Basel III capital standards and the effect of our transition to the Current Expected Credit Losses (CECL) methodology for allowances and related adjustments), including our ability to generate liquidity internally or raise capital on favorable terms;
•possible changes in trade, monetary and fiscal policies, laws and regulations and other activities of governments, agencies, and similar organizations;
•any impairments of the Company’s goodwill or other intangible assets;
•conditions in the financial markets that may limit the Company’s access to additional funding to meet its liquidity needs;
•the intention of the United Kingdom’s Financial Conduct Authority (FCA) to cease support of London Inter-Bank Offered Rate (LIBOR) and the transition to an alternative reference interest rate;
•the success of the Company's growth plans, including our plans to grow the commercial small business leasing portfolio and residential mortgage, small business and Small Business Administration (SBA) portfolios following our acquisition of Beneficial Bancorp, Inc. (Beneficial);
•the successful integration of acquisitions;
•the Company’s ability to fully realize the cost savings and other benefits of its acquisitions, manage risks related to business disruption following those acquisitions, and post-acquisition customer acceptance of the Company’s products and services and related customer disintermediation;
•negative perceptions or publicity with respect to the Company’s trust and wealth management business;
•failure of the financial and operational controls of the Company’s Cash Connect® division;
•adverse judgments or other resolution of pending and future legal proceedings, and cost incurred in defending such proceedings;
•our reliance on third parties for certain important functions, including the operation of our core systems;
•system failures or cybersecurity incidents or other breaches of the Company’s network security;
•the Company’s ability to recruit and retain key employees;
•the effects of problems encountered by other financial institutions that adversely affect the Company or the banking industry generally;
•the effects of weather and natural disasters such as floods, droughts, wind, tornadoes and hurricanes as well as effects from geopolitical instability and man-made disasters including terrorist attacks; possible changes in the speed of loan prepayments by the Company’s customers and loan origination or sales volumes;
•possible changes in the speed of prepayments of mortgage-backed securities due to changes in the interest rate environment, and the related acceleration of premium amortization on prepayments in the event that prepayments accelerate;
•regulatory limits on the Company’s ability to receive dividends from its subsidiaries and pay dividends to its stockholders;
•litigation and other risks and uncertainties, including those discussed in other documents filed by the Company with the Securities and Exchange Commission (SEC) from time to time; and
•any reputation, credit, interest rate, market, operational, legal, liquidity, regulatory and compliance risk resulting from developments related to any of the risks discussed above.
These risks and uncertainties and other risks and uncertainties that could adversely affect our business, results of operations, financial condition or future prospects are discussed herein, including under the heading “Risk Factors,” and in other documents filed by the Company with the SEC. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. The Company disclaims any duty to revise or update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Company for any reason, except as specifically required by law.
As used in this Annual Report on Form 10-K, the terms “WSFS”, “the Company”, “registrant”, “we”, “us”, and “our” mean WSFS Financial Corporation and its subsidiaries, on a consolidated basis, unless the context indicates otherwise.
Cash Connect® is our registered trademark. Any other trademarks appearing in this Annual Report on Form 10-K are the property of their respective holders.
ITEM 1. BUSINESS
WSFS Financial Corporation (the Company or WSFS) is a savings and loan holding company headquartered in Wilmington, Delaware. Substantially all of our assets are held by the Company's subsidiary, Wilmington Savings Fund Society, FSB (WSFS Bank or the Bank), one of the ten oldest bank and trust companies in the United States (U.S.) continuously operating under the same name. With $12.3 billion in assets and $20.7 billion in assets under management (AUM) and assets under administration (AUA) at December 31, 2019, WSFS Bank is the largest locally-headquartered community bank in the Delaware and greater Philadelphia region. As a federal savings bank, which was formerly chartered as a state mutual savings bank, WSFS Bank enjoys broader fiduciary powers than most other financial institutions. A fixture in the community, WSFS Bank has been in operation for more than 188 years. In addition to its focus on stellar customer experiences, WSFS Bank has continued to fuel growth and remain a leader in our community. We are a relationship-focused, locally-managed banking institution. We state our mission simply: “We Stand for Service.” Our strategy of “Engaged Associates, living our culture, making a better life for all we serve” focuses on exceeding customer expectations, delivering stellar experiences and building customer advocacy through highly-trained, relationship-oriented, friendly, knowledgeable and empowered Associates.
Our banking business had a total loan portfolio of $8.5 billion, which is primarily commercial lending funded by customer-generated deposits. We have built a $6.3 billion commercial loan portfolio by recruiting the best seasoned commercial lenders in our markets and offering the high level of service and flexibility typically associated with a community bank. We fund this business primarily with deposits generated through commercial relationships and retail deposits, as well as through our digital banking platforms.
We also offer a broad variety of consumer loan products, retail securities and insurance brokerage services through our retail branches, and mortgage and title services through those branches and through WSFS Mortgage. WSFS Mortgage is a mortgage banking company and abstract and title company specializing in a variety of residential mortgage and refinancing solutions.
Our leasing business is conducted by NewLane Finance Company (NewLane Finance), which was formerly Neumann Finance Company. During the third quarter of 2019, the leasing operations of NewLane Finance and Beneficial Equipment Finance Corporation (BEFC) were combined and all new leases are now originated at NewLane Finance. NewLane Finance originates small business leases and provides commercial financing to businesses nationwide, targeting various equipment categories including technology, software, office, medical, veterinary and other areas.
Our Cash Connect® business is a premier provider of ATM vault cash, smart safe (safes that automatically accept, validate, record and hold cash in a secure environment) and other cash logistics services in the U.S. Cash Connect® manages $1.4 billion in total cash and services approximately 27,900 non-bank ATMs and approximately 3,200 smart safes nationwide. Cash Connect® provides related services such as online reporting and ATM cash management, predictive cash ordering and reconcilement services, armored carrier management, loss protection, ATM processing equipment sales and deposit safe cash logistics. Cash Connect® also operates 473 branded ATMs for WSFS Bank, which has one of the largest branded ATM networks in our market.
Our Wealth Management business provides a broad array of planning and advisory services, investment management, trust services, and credit and deposit products to individual, corporate, and institutional clients through multiple integrated businesses. Combined, these businesses had $20.7 billion of AUM and AUA at December 31, 2019. WSFS Wealth Investments provides financial advisory services. Cypress, a registered investment adviser, is a fee-only wealth management firm managing a “balanced” investment style portfolio focused on preservation of capital and generating current income. West Capital, a registered investment adviser, is a fee-only wealth management firm operating under a multi-family office philosophy to provide customized solutions to institutions and high net worth individuals. The trust division of WSFS Bank (doing business as WSFS Institutional Services) provides personal trust and fiduciary services, as well as, trustee, agency, bankruptcy administration, custodial and commercial domicile services to corporate and institutional clients. Powdermill is a multi-family office providing independent solutions to high-net-worth individuals, families and corporate executives through a coordinated, centralized approach. WSFS Wealth Client Management provides comprehensive solutions to high net worth clients by delivering credit and deposit products as well as partnering with other wealth management units.
As of December 31, 2019, we service our customers primarily from our 118 offices located in Pennsylvania (55), Delaware (45), New Jersey (16), Virginia (1) and Nevada (1), our ATM network, our website at www.wsfsbank.com and our mobile app.
The Company has five consolidated subsidiaries: WSFS Bank, WSFS Wealth Management, LLC (Powdermill), WSFS Capital Management, LLC (West Capital), Cypress Capital Management, LLC (Cypress) and Christiana Trust Company of Delaware (Christiana Trust DE).
WSFS Bank has four wholly owned subsidiaries: BEFC, WSFS Investment Group, Inc. (WSFS Wealth Investments), 1832 Holdings, Inc. and WSFS SPE Services, LLC. WSFS Wealth Investments markets various third-party investment and insurance products such as single-premium annuities, whole life policies and securities, primarily through our retail banking system and directly to the public. 1832 Holdings, Inc. was formed to hold certain debt and equity investment securities. WSFS Bank has one majority-owned subsidiary, NewLane Finance, as previously mentioned in "Our Business."
WSFS has one unconsolidated subsidiary, WSFS Capital Trust III (the Trust), which was formed in 2005 to issue $67.0 million aggregate principal amount of Pooled Floating Rate Capital Securities.
For financial reporting purposes, our business has three segments: WSFS Bank, Cash Connect® and Wealth Management. The WSFS Bank segment provides loans and leases and other financial products to commercial and retail customers. Cash Connect® provides ATM vault cash, smart safe and other cash logistics services in the U.S through strategic partnerships with several of the largest network, manufacturers and service providers in the cash logistics industry. The Wealth Management segment provides a broad array of planning and advisor services, investment management, trust services, and credit and deposit products to individuals, corporate and institutional clients.
For segment financial information for the years ended December 31, 2019, 2018 and 2017, see Note 22 to the Consolidated Financial Statements in this report.
During the first quarter of 2019, we acquired Beneficial, including its subsidiary Beneficial Bank. Subject to the terms and conditions of the merger agreement, stockholders of Beneficial received 0.3013 shares of WSFS common stock and $2.93 in cash for each share of Beneficial common stock. See Note 3 to the Consolidated Financial Statements for further information.
During the second quarter of 2019, we completed the sale of five Beneficial Bank retail banking offices in New Jersey, with approximately $177.9 million in deposits, to The Bank of Princeton, a New Jersey-based financial institution, at a deposit premium of 7.37%. The sale was part of a previously announced branch optimization plan to consolidate and divest 30 retail banking offices, or 25%, of the combined WSFS and Beneficial branch network.
During the third quarter of 2019, we completed the systems integration and rebranding of Beneficial Bank, and all Beneficial Bank accounts have successfully converted to WSFS Bank accounts. Most of the consolidations from the branch optimization plan and rebranding of the remaining Beneficial banking offices were completed during the conversion. All legacy Beneficial customers have full access to WSFS services and solutions, including 93 retail banking offices across Delaware, Philadelphia, southeastern Pennsylvania, and southern New Jersey, and a network of nearly 500 WSFS ATMs. In addition, the leasing operations of NewLane Finance and BEFC were combined as noted above.
During the fourth quarter of 2019, we initiated the next phase of our leadership succession plan. Effective January 1, 2020, Rodger Levenson assumed the role of Chairman of the Board of Directors in addition to his role as President and CEO, with former Executive Chairman Mark A. Turner remaining on the Board as a director.
WSFS POINTS OF DIFFERENTIATION
While all banks offer similar products and services, we believe that WSFS, through its service model, has set itself apart from other banks in our market and the industry in general. In addition, community banks such as WSFS have been able to distinguish themselves from large national or international banks by providing our customers with the service levels, responsiveness and local decision making they prefer. The following factors summarize what we believe are our points of differentiation:
Our Culture of Engagement
Our business model is designed using the science of Human Sigma, which is built on a foundation of engagement. The Human Sigma model, identified by Gallup, Inc., begins with Associates who take ownership for their responsibilities and impact; as such, they consistently perform at a higher level. We significantly invest in our culture of engagement which underpins all that we do at WSFS, including attracting, motivating and retaining our Associates, delivering stellar Customer experiences and strengthening the wellbeing of our communities. Our culture is based on the fundamental principal of “a really good life.” Our strategy, “Engaged Associates, living our culture, making a better life for all we serve” builds upon that principal.
Our strategy in action starts a virtuous cycle whereby, as we do better, our community does better and as our community does better, we do better. It’s a simple premise that plays out in a big way every day, and we are all better for it. Research studies validate the direct link between engagement and a company’s financial performance. Our Strategy, which triggers our virtuous cycle, continues to endorse that research, reinforce our culture and is evidenced in our Company results.
Surveys conducted for us by Gallup, Inc. indicate that:
•Our Associate Engagement scores consistently rank in the top quintile of companies polled. In 2019, our engagement ratio was 7.6:1, which means there were 7.6 engaged Associates for every actively disengaged Associate. This compares to a 2.6:1 ratio in 2003 and currently, a U.S. working population ratio of 2.7:1.
•68% of customers surveyed ranked us a “five” out of “five,” strongly agreeing with the statement “WSFS is the perfect bank for me.”
By fostering a culture of engaged and empowered Associates, we believe we have become the employer and bank of choice in our market. In 2019, for the 14th consecutive year, we were named a top workplace in Delaware in The News Journal’s ‘Top Workplaces’ survey of our Associates and ranked in first place. We were also named to the 'Soaring 76' for the third year in a row by the Philadelphia Business Journal, recognizing us as one of the 76 fastest growing companies in the greater Philadelphia region. We recently received our 2019 full-year Gallup Survey results which included the first-time participation from legacy Beneficial Associates. We were pleased that both our Customer and Associate Engagement scores continue to place WSFS solidly in the top quintile for companies in Gallup’s global database.
Community Banking Model
Our size and community banking model play a key role in our success. Our approach to business combines a service-oriented culture with a full complement of products and services, all aimed at meeting the needs of our retail, business and wealth Customers. We believe the essence of being a community bank means that we are:
•Small enough to offer Customers responsive, personalized service and direct access to decision makers, yet
•Large enough to provide all the products and services needed by our target market customers.
As the financial services industry has consolidated, many independent banks have been acquired by national companies that have centralized their decision-making authority away from their customers and focused their mass-marketing on a regional or even national customer base. We believe this trend has underserved small and medium size business owners who have become accustomed to dealing directly with their bank’s senior executives, discouraged retail customers who often experience deteriorating levels of service in branches and other service outlets, and frustrated bank employees who are no longer empowered to provide good and timely service to their customers.
Through our merger with Beneficial, we have created the largest, premier, locally-headquartered community bank in the Delaware and greater Philadelphia region, offering the benefits of local market knowledge and decision-making, a full-service product suite, the balance sheet to compete with larger regional and national banks, and most importantly, a culture of engaged Associates that bring to life WSFS’ mission of We Stand For Service in our daily delivery of stellar Customer experiences.
WSFS Bank offers:
•One primary point of contact - each of our relationship managers is responsible for understanding his or her Customers’ needs and bringing together the right resources in WSFS Bank to meet those needs.
•A customized approach to serving our Customers - we believe that this gives us an advantage over our competitors who are too large or centralized to offer customized products or services.
•Products and services that our Customers value - this includes a broad array of banking, cash management and trust and wealth management products, as well as a legal lending limit high enough to meet the credit needs of our Customers, especially as they grow.
•Rapid response and a company that is easy to do business with - our Customers tell us this is an important differentiator from larger, in-market competitors.
Strong Market Demographics
Our markets, which primarily include Delaware, southeastern Pennsylvania and southern New Jersey, are located in the urban markets of Philadelphia and Baltimore, which is situated between the Washington, DC to New York corridor. Delaware and the greater Philadelphia region benefits from this urban concentration as well as from a unique political, legal, tax and business environment. The following table shows key demographics for our markets compared to the national average.
|(Most recent available statistics)||Delaware|
Southern New Jersey (2)
Unemployment (For November 2019) (3) (4) (5)
|3.8% || ||3.9% || ||3.4% || ||3.5% || |
Median Household Income (2014-2018) (6)
|$65,627 || ||$77,246 || ||$76,055 || ||$60,293 || |
Population Growth (2010-2019) (7) (8)
|8.4% || ||3.0% || ||(1.0)%|| ||6.3% || |
(1)Comprised of Bucks, Chester, Delaware, Montgomery, and Philadelphia Counties
(2)Comprised of Burlington and Camden Counties
(3)Bureau of Labor Statistics - Delaware and National unemployment rates are as of November 2019, seasonally adjusted
(4)Bureau of Labor Statistics - Southeastern Pennsylvania unemployment rate is a simple average of the November 2019 not seasonally adjusted unemployment rates for Bucks, Chester, Delaware, Montgomery, and Philadelphia Counties
(5)Bureau of Labor Statistics - Southern New Jersey unemployment rate is a simple average of the November 2019 not seasonally adjusted unemployment rates for Burlington and Camden Counties
(6)U.S. Census Bureau - Quick Facts 2014 - 2018
(7)U.S. Census Bureau - Quick Facts 2010 - 2019
(8)Southeastern Pennsylvania and southern New Jersey data is for 2010 - 2018
Balance Sheet Management
We put a great deal of focus on actively managing our balance sheet. This manifests itself in:
•Prudent capital levels - Maintaining prudent capital levels is key to our operating philosophy. At December 31, 2019, the Company's common equity to assets ratio was 15.10% and its tangible common equity to tangible assets ratio, which is a non-GAAP financial measure, was 10.97%. At December 31, 2019 all regulatory capital levels for WSFS Bank were above well-capitalized levels. At December 31, 2019, WSFS Bank’s common equity Tier 1 capital ratio was 13.52% and $708.8 million in excess of the 6.5% “well-capitalized” level under the banking agencies’ prompt corrective action framework: the Bank’s Tier 1 capital ratio was 13.52% and $557.3 million in excess of the 8% “well-capitalized” level, the Bank’s total risk-based capital ratio was 14.01% and $404.9 million above the “well-capitalized” level of 10%, and the Bank's leverage ratio was 11.72%, or $782.7 million, above the 5% “well-capitalized” level.
The tangible common equity to tangible assets ratio is a non-GAAP financial measure. For a reconciliation of the tangible common equity to tangible assets ratio to net income and total assets, the most comparable U.S. generally accepted accounting principles (GAAP) measures, refer to “Reconciliation of non-GAAP financial measures included in Item 1” located at the end of this section.
•Disciplined lending - We maintain discipline in our lending with a particular focus on portfolio diversification and granularity. Diversification includes limits on loans to one borrower as well as industry and product concentrations. We supplement this portfolio diversification with a disciplined underwriting process and the benefit of knowing our customers. We have also taken a proactive approach to identifying trends in our local economy and have responded to areas of concern.
•Focus on credit quality - We seek to control credit risk in our investment portfolio and use this portion of our balance sheet primarily to help us manage liquidity and interest rate risk, while providing marginal income and tax relief. Our philosophy and pre-purchase due diligence has allowed us to avoid the significant investment write-downs taken by many of our peers during the last economic downturn.
•Asset/liability management strategies - Our investment portfolio is consistent with the approved risk appetite of our Board of Directors. We work to optimize duration, yield and liquidity and to minimize credit risk within policy guidelines. The concentration in agency MBS (95% of investment portfolio) and bank qualified municipal bonds (5% of investment portfolio) provides liquidity, yield and credit to meet the intended risk profile.
Disciplined Capital Management
We understand that our capital (or stockholders’ equity) belongs to our stockholders. They have entrusted this capital to us with the expectation that it will earn an appropriate return relative to the risks we take. Mindful of this balance, we prudently, but aggressively, manage our capital. We continue to execute our current Board-approved share repurchase plan, as well as any future Board-approved share repurchase plans, including opportunistically repurchasing shares, based on current valuation levels, above our stated practice of returning a minimum of 25% of annual net income to stockholders through dividends and share repurchases.
Strong Performance Expectations and Alignment with Stockholder Priorities
We are focused on high-performing, long-term financial goals. We define “high-performing” as the top quintile of a relevant peer group in return on assets (ROA). Management incentives are, in large part, based on driving performance of ROA as well as return on average tangible common equity (ROTCE) and EPS growth. More details on management incentive plans will be included in the proxy statement for our 2020 annual meeting of stockholders.
During 2019, we met or exceeded many goals in our 2019-2021 Strategic Plan. For the year ended December 31, 2019, WSFS reported ROA of 1.30%. Core ROA, which excludes non-core items and is a non-GAAP financial measure, was 1.61% for the year ended December 31, 2019, demonstrating our steady progress toward the goals we set in our three year, 2019-2021 Strategic Plan, excluding volatility in the interest rate environment.
Core ROA for 2019 excludes (i) corporate development and restructuring expenses, (ii) securities gains, (iii) unrealized gains on equity investments, and (iv) an insurance recovery related to a previously disclosed fraud loss recognized in 2017. For a reconciliation of Core ROA to ROA, the most comparable GAAP measure, refer to “Reconciliation of non-GAAP financial measures included in Item 1” located at the end of this section.
We have achieved success over the long-term in lending and deposit gathering, growing the Wealth Management segment’s client base and growing Cash Connect®’s customer base and services. Our success has been the result of a focused strategy that provides service, responsiveness and careful execution in a consolidating marketplace. We plan to continue to grow by:
•Developing talented, service-minded Associates: We have successfully recruited Associates with strong ties to, and the passion to serve, their communities to enhance our service in existing markets and to provide a strong start in new communities. We also focus on developing talent and leadership from our current Associate base to better equip those Associates for their jobs and prepare them for leadership roles at WSFS.
•Embracing the Human Sigma concept: We are committed to building Associate Engagement and Customer Advocacy as a way to differentiate ourselves and grow our franchise.
•Building fee income through investment in and growth of our Wealth Management and Cash Connect® segments.
•Continuing strong growth in commercial and retail lending by:
◦Offering local decision-making by seasoned banking professionals.
◦Executing our community banking model that combines stellar experiences with the banking products and services our business customers demand.
◦Expanding our NewLane Finance leasing business through our merger with Beneficial.
◦Adding seasoned lending professionals that have helped us win customers in our Delaware, southeastern Pennsylvania and southern New Jersey markets, which contributes to our expanding commercial small business leasing portfolio and residential mortgage, small business and SBA portfolios in the larger footprint we operate due to our merger with Beneficial.
•Continuing to grow deposits by:
◦Offering products through an expanded and updated branch network resulting from our merger with Beneficial, increasing our market presence in Philadelphia, southeastern Pennsylvania and southern New Jersey.
◦Providing a stellar experience to our Customers.
◦Further expanding our commercial Customer relationships with deposit and cash management products.
◦Finding creative ways to build deposit market share such as targeted marketing programs.
◦Investing in technology through our Delivery Transformation initiative.
•Seeking strategic acquisitions. During 2016, we acquired Penn Liberty Financial Corp. (Penn Liberty) and its wholly-owned subsidiary, Penn Liberty Bank, expanding our presence in the southeastern Pennsylvania market. In 2016, we also acquired the assets of Powdermill Financial Solutions, LLC and West Capital Management, Inc., an independent, fee-only wealth management firm. During 2017 and 2018, we focused on optimizing those acquisitions. During 2019, we completed our merger and integration with Beneficial, thereby further expanding our presence in the southeastern Pennsylvania and southern New Jersey markets. Over the next several years, we expect our growth to continue to be a mix of organic and acquisition-related growth, consistent with our long-term strategy.
Our organization is committed to product and service innovation as a means to drive growth and to stay ahead of changing customer demands and emerging competition. We are focused on developing and maintaining a strong “culture of innovation” that solicits, captures, prioritizes and executes innovation initiatives, including feedback from our customers, as well as leveraging technology from product creation to process improvements. Cash Connect®, a premier provider of ATM vault cash, smart safe and other cash logistics services in the U.S., serves as an innovation engine by driving enhancements such as mobile phone cash withdrawals from WSFS ATMs, and has developed best-in-class cash logistics and reconciliation software. These innovations have created internal efficiencies and valued services for our local banking customers and merchants across the nation. We intend to continue to leverage technology and innovation to grow our business and to successfully execute on our strategy.
We have embarked on a multi-year Delivery Transformation initiative focused on melding our physical and digital delivery, consistent with our brand, by enabling our Associates with the latest technology and actionable data to better serve our Customers. Industry and customer behavior trends continue to shift as observed in reduced branch traffic and increased mobile adoption. As such, we have concluded that we need to transform our delivery channels to meet these new expectations. As we continue to make progress on our 2019-2021 Strategic Plan, we have accelerated our transformation by optimizing our physical branch network and making strategic investments in meaningful technology solutions, supported by specialized talent. Those investments are expected to provide our Customers with leading edge products and elevate our Associates, as they strive to serve in a competitive and compelling way. We are designing and integrating solutions to provide personalized experiences to our Customers, while retaining the essence of what makes WSFS great. Through our Delivery Transformation and our ongoing commitment to Stellar Service, we intend to continue to lead the community and regional banking industry with regards to service delivery and Customer experience.
Over the past several years, we have formed several strategic alliances and investments, which have allowed us to stay at the forefront of emerging technology in our industry. Through these partnerships, we look forward to offering and supporting even more innovative products to the financial services marketplace, continuing our organizational learning in this fast-developing space, and participating in value creation for our stockholders.
Our values address integrity, service, accountability, transparency, honesty, growth and desire to improve. They are the core of our culture, they make us who we are and we live them every day.
At WSFS, we:
•Do the right thing.
•Are welcoming, open and candid.
•Grow and improve.
Enterprise Risk Management
We manage our risks through our Enterprise Risk Management (ERM) program administered by the Chief Risk Officer (CRO) and ERM Manager. Our stand-alone ERM department is separate from our lines of business. Formal Risk Appetite Statements have been developed for each major risk category throughout the institution; these statements are reviewed and approved by the Board annually. Key Risk Indicators (KRI’s) or Risk metrics are continually monitored in relation to risk appetite though a Risk Assessment Summary (RAS) dashboard. Each KRI has an assigned quantitative tolerance level which considers our overall risk appetite, regulatory requirements, the bank’s peer group statistics, best practices, and general industry guidelines. As part of our ERM Program, approximately 120 KRIs are monitored company-wide. In the event that risk levels exceed our defined risk appetite, management action is required. The CRO and/or the ERM manager conduct meetings with management of respective business lines at least three times per year to discuss and gather information for ERM reporting. ERM reporting is provided to the Board of Directors three times per year. From a regulatory perspective, our ERM program is evaluated as part of the regular Safety and Soundness examination by the OCC.
Our focus on these points of differentiation has allowed us to grow our core franchise and build value for our stockholders. Since 2015, our commercial loans which exclude loans held-for-sale have grown from $3.2 billion to $6.3 billion at December 31, 2019, a strong 15% compound annual growth rate (CAGR). Over the same period, customer deposits have grown from $3.9 billion to $9.3 billion, a 19% CAGR. Since 2009, stockholder value has increased at a far greater rate than our banking peers. An investment of $100 in WSFS common stock in 2009 would be worth $566 at December 31, 2019. By comparison, $100 invested in the Nasdaq Bank Index in 2009 would be worth $298 at December 31, 2019.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS’ EQUITY
Condensed average balance sheets for each of the last two years and analyses of net interest income and changes in net interest income due to changes in volume and rate are presented in “Results of Operations” included in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
CREDIT EXTENSION ACTIVITIES
Over the past several years we have focused on growing the more profitable, relationship-oriented segments of our loan portfolio. Our current portfolio lending activity is concentrated on small- to mid-sized businesses in the mid-Atlantic region of the U.S., primarily in Delaware, southeastern Pennsylvania, southern New Jersey, Maryland and northern Virginia. Since 2015, our total net commercial loans have increased by $3.2 billion, or 101%, and accounted for 75% of our net loan portfolio at December 31, 2019. Based on current market conditions, we expect our focus on growing commercial and industrial loans and other relationship-based commercial loans to continue during the remainder of 2020 and beyond.
The following table shows the composition of our loan portfolio at year-end for the last five years:
| ||At December 31,|
|(Dollars in thousands)||2019||2018||2017||2016||2015|
|Types of Loans|
|Commercial real estate:|
|Commercial mortgage||$||2,222,976 || ||26.4 ||%||$||1,162,739 || ||23.9 ||%||$||1,187,705 || ||24.9 ||%||$||1,163,554 || ||26.2 ||%||$||966,698 || ||25.8 ||%|
|Construction||581,082 || ||6.9 ||%||316,566 || ||6.5 ||%||281,608 || ||5.9 ||%||222,712 || ||5.0 ||%||245,773 || ||6.5 ||%|
|Total commercial real estate||2,804,058 || ||33.3 ||%||1,479,305 || ||30.4 ||%||1,469,313 || ||30.8 ||%||1,386,266 || ||31.2 ||%||1,212,471 || ||32.3 ||%|
|Commercial and industrial||2,046,798 || ||24.3 ||%||1,472,489 || ||30.3 ||%||1,464,554 || ||30.7 ||%||1,287,731 || ||29.0 ||%||1,061,597 || ||28.3 ||%|
|Commercial — owner-occupied||1,296,466 || ||15.4 ||%||1,059,974 || ||21.8 ||%||1,079,247 || ||22.6 ||%||1,078,162 || ||24.3 ||%||880,643 || ||23.5 ||%|
|Commercial small business leases||188,630 || ||2.2 ||%||— || ||— ||%||— || ||— ||%||— || ||— ||%||— || ||— ||%|
|Total commercial loans||6,335,952 || ||75.2 ||%||4,011,768 || ||82.5 ||%||4,013,114 || ||84.1 ||%||3,752,159 || ||84.5 ||%||3,154,711 || ||84.1 ||%|
|1,016,500 || ||12.1 ||%||218,099 || ||4.5 ||%||253,301 || ||5.3 ||%||289,611 || ||6.5 ||%||283,963 || ||7.6 ||%|
|Consumer||1,128,731 || ||13.4 ||%||680,939 || ||14.0 ||%||558,493 || ||11.7 ||%||450,029 || ||10.1 ||%||360,249 || ||9.5 ||%|
|Total residential and consumer loans||2,145,231 || ||25.5 ||%||899,038 || ||18.5 ||%||811,794 || ||17.0 ||%||739,640 || ||16.6 ||%||644,212 || ||17.1 ||%|
|Gross loans and leases||8,481,183 || ||100.7 ||%||4,910,806 || ||101.0 ||%||4,824,908 || ||101.1 ||%||4,491,799 || ||101.1 ||%||3,798,923 || ||101.2 ||%|
|Deferred fees (unearned income)||9,143 || ||0.1 ||%||7,348 || ||0.2 ||%||7,991 || ||0.2 ||%||7,673 || ||0.2 ||%||8,500 || ||0.2 ||%|
|Allowance for loan and lease losses||47,576 || ||0.6 ||%||39,539 || ||0.8 ||%||40,599 || ||0.9 ||%||39,751 || ||0.9 ||%||37,089 || ||1.0 ||%|
Net loans and leases (2)
|$||8,424,464 || ||100.0 ||%||$||4,863,919 || ||100.0 ||%||$||4,776,318 || ||100.0 ||%||$||4,444,375 || ||100.0 ||%||$||3,753,334 || ||100.0 ||%|
(1)Includes reverse mortgages, at fair value of $16.6 million; $16.5 million; $19.8 million; $22.6 million; and $24.3 million at December 31, 2019, 2018, 2017, 2016 and 2015 respectively.
(2)Excludes $83.9 million; $25.3 million; $31.1 million; $54.8 million; and $41.8 million of C&I and residential mortgage loans held for sale at December 31, 2019, 2018, 2017, 2016, and 2015, respectively.
The following tables show our loan portfolio by remaining contractual maturity as of December 31, 2019. The first table details the total loan portfolio by type of loan. The second table details the total loan portfolio by those with fixed interest rates and those with adjustable interest rates. Loans may be pre-paid, so the actual maturity may differ from the contractual maturity. Prepayments tend to be highly dependent upon the interest rate environment. Loans having no stated maturity or repayment schedule are reported in the "Less than One Year" category.
|(Dollars in thousands)|
|Commercial mortgage loans||$||190,798 || ||$||1,534,025 || ||$||498,153 || ||$||2,222,976 || |
|Construction loans||156,154 || ||417,715 || ||7,213 || ||581,082 || |
|Commercial and industrial loans ||399,111 || ||1,263,102 || ||384,585 || ||2,046,798 || |
|Commercial owner-occupied loans||181,927 || ||691,032 || ||423,507 || ||1,296,466 || |
|Commercial small business leases||1,977 || ||181,429 || ||5,224 || ||188,630 || |
Residential loans (1)
|40,987 || ||619,370 || ||339,522 || ||999,879 || |
|Consumer loans||295,797 || ||512,994 || ||319,940 || ||1,128,731 || |
|Total gross loans and leases||$||1,266,751 || ||$||5,219,667 || ||$||1,978,144 || ||$||8,464,562 || |
|Fixed||$||563,981 || ||$||2,374,073 || ||$||1,039,331 || ||$||3,977,385 || |
|702,770 || ||2,845,594 || ||938,813 || ||4,487,177 || |
|Total gross loans and leases||$||1,266,751 || ||$||5,219,667 || ||$||1,978,144 || ||$||8,464,562 || |
(1) Excludes reverse mortgages at fair value of $16.6 million.
(2) Includes hybrid adjustable-rate mortgages.
Pursuant to section 5(c) of the Home Owners’ Loan Act (HOLA), federal savings banks are generally permitted to invest up to 400% of their total regulatory capital in nonresidential real estate loans and up to 20% of their assets in commercial loans, but no more than 10% may be in loans that do not qualify as small business loans. As a federal savings bank that was formerly chartered as a Delaware savings bank, the Bank has certain additional lending authority.
Commercial, commercial owner-occupied, commercial mortgage and construction loans have higher levels of risk than residential mortgage lending. These loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. In addition, the payment experience on loans secured by income-producing properties is typically dependent on the successful operation of the related real estate project and may be more subject to adverse conditions in the commercial real estate market or in the general economy than residential mortgage loans. The majority of our commercial and commercial real estate loans are concentrated in Delaware and Pennsylvania.
We offer commercial real estate mortgage loans on multi-family properties and on other commercial real estate. Generally, loan-to-value ratios for these loans do not exceed 80% of appraised value at origination.
Our commercial mortgage portfolio was $2.2 billion at December 31, 2019. Generally, this portfolio is diversified by property type, with no type representing more than 28% of the portfolio. The largest type is retail-related (non-mall, neighborhood shopping centers and other retail) with balances of $635.3 million at December 31, 2019. The average size of a loan in the commercial mortgage portfolio is $0.8 million and only 17 loans are greater than $12.0 million, with two loans greater than $24.0 million.
We offer commercial construction loans to developers. In some cases these loans are made as “construction/permanent” loans, which provides for disbursement of loan funds during construction with the option of conversion to mini-permanent loans (one - five years) upon completion of construction. These construction loans are short-term, usually not exceeding two years, with interest rates indexed to our WSFS prime rate, the “Wall Street” prime rate or LIBOR, in most cases, and are adjusted periodically as these indices change. The loan appraisal process includes the same evaluation criteria as required for permanent mortgage loans, but also takes into consideration: completed plans, specifications, comparables and cost estimates. Prior to approval of each loan, these criteria are used as a basis to determine the appraised value of the subject property when completed. Our policy requires that all appraisals be reviewed independently from our commercial business development staff. At origination, the loan-to-value ratios for construction loans generally do not 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, 2019, $928.7 million was committed for construction loans, of which $581.1 million was outstanding. The residential construction and land development (CLD) portfolio represented $249.3 million, or 3%, of total loans and 18% of Tier 1 capital (Tier 1 + ALLL), and the commercial CLD portfolio represented $227.3 million, or 3%, of total loans. These portfolios include $23.3 million of “land hold” loans, which are land loans not currently being developed, at December 31, 2019.
Commercial and industrial and owner-occupied commercial loans include loans for working capital, financing equipment and real estate acquisitions, business expansion and other business purposes. These relationships generally range in amounts of up to $70.0 million with an average loan balance in the portfolio of $0.3 million and terms ranging from less than one year to ten years. The loans generally carry variable interest rates indexed to our WSFS prime rate, “Wall Street” prime rate or LIBOR. At December 31, 2019, our commercial and industrial and owner-occupied commercial loan portfolios were $3.3 billion and represented 40% of our total loan portfolio. These loans are diversified by industry, with no industry representing more than 18% of the portfolio.
Federal law limits the Bank’s extensions of credit to any one borrower to 15% of our unimpaired capital (approximately $204.8 million), and an additional 10% if the additional extensions of credit are secured by readily marketable collateral. Extensions of credit include outstanding loans as well as contractual commitments to advance funds, such as standby letters of credit. At December 31, 2019, no borrower had collective (relationship) total extensions of credit exceeding these legal lending limits. Our internal "House Limit" to any one borrowing relationship is $70.0 million.
Small business and middle market commercial loans that include specialty-lending products, including small business leases and SBA loans, comprise the remainder of our commercial portfolio. Our small business and SBA loans include loan exposures up to $1.5 million and $5.0 million, respectively.
Our commercial small business leases finance business critical equipment through advanced technologies, customer-centric approach and transparent business lending practices. The commercial small business leases portfolio was $188.6 million at December 31, 2019. These leases included average deal sizes of approximately $20 thousand, with yields ranging from 6% to 18% and maturity terms of 12 to 72 months.
Generally, we originate held-for-sale residential first mortgage loans with loan-to-value ratios of up to 80% and require private mortgage insurance or government guarantee for up to 35% of the mortgage amount for mortgage loans with loan-to-value ratios exceeding 80%. On a very limited basis, we have originated or purchased loans with loan-to-value ratios exceeding 80% without a private mortgage insurance requirement or government guarantee. At December 31, 2019, the balance of all such loans was approximately $9.8 million.
Our residential mortgage loans generally are underwritten and documented in accordance with standard underwriting criteria published by Fannie Mae, Freddie Mac, Federal Housing Agency, Veterans Administration, the U.S. Department of Agriculture and other secondary market participants to assure maximum eligibility for subsequent sale in the secondary market.
To protect the propriety of our liens, we require borrowers to provide title insurance. We also require fire, extended coverage casualty and flood insurance (where applicable) for properties securing residential loans. All properties securing our residential loans are appraised by independent, licensed and certified appraisers and are subject to review in accordance with our standards.
The majority of our adjustable-rate, residential loans have interest rates that adjust yearly after an initial period. The change in rate for the first adjustment date could be higher than the typical limited rate change of two percentage points at each subsequent adjustment date. Adjustments are generally based upon a margin (currently 2.50% for U.S. Treasury index; 2.25% for LIBOR index) over the weekly average yield on U.S. Treasury securities adjusted to a constant maturity, as published by the Board of Governors of the Federal Reserve System (the Federal Reserve).
Usually, the maximum rate on these loans is five percent above the initial interest rate. We underwrite adjustable-rate loans under standards consistent with private mortgage insurance and secondary market underwriting criteria. We do not originate adjustable-rate mortgages with payment limitations that could produce negative amortization.
The adjustable-rate mortgage loans in our loan portfolio help mitigate the risk related to our exposure to changes in interest rates. However, there are unquantifiable credit risks resulting from potential increased costs to the borrower as a result of re-pricing adjustable-rate mortgage loans. During periods of rising interest rates, the risk of default on adjustable-rate mortgage loans may increase due to the upward adjustment of interest costs to the borrower. Further, although adjustable-rate mortgage loans allow us to increase the sensitivity of our asset base to changes in interest rates, the extent of this interest sensitivity is limited by the periodic and lifetime interest rate adjustment limitations. Accordingly, yields on our adjustable-rate mortgages may not adjust sufficiently to compensate for increases to our cost of funds during periods of extreme interest rate increases.
The original contractual loan payment period for residential loans is normally 10 to 30 years. Because borrowers may refinance or prepay their loans without penalty, these loans tend to remain outstanding for a substantially shorter period of time. First mortgage loans customarily include “due-on-sale” clauses. This provision gives us the right to declare a loan immediately due and payable in the event the borrower sells or otherwise disposes of the real property subject to the mortgage. We enforce due-on-sale clauses through foreclosure and other legal proceedings to the extent available under applicable laws.
In general, loans are sold without recourse except for the repurchase right arising from standard contract provisions covering violation of representations and warranties or, under certain investor contracts, a default by the borrower on the first payment. We also have limited recourse exposure under certain investor contracts in the event a borrower prepays a loan in total within a specified period after sale, typically 120 days. 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. There was one repurchase in 2019 with minimal impact, and no repurchases in 2018 and 2017.
Our primary consumer credit products (excluding first mortgage loans) are home equity lines of credit and equity-secured installment loans. At December 31, 2019, home equity lines of credit outstanding totaled $370.5 million and equity-secured installment loans totaled $375.0 million. In total, these product lines represented 66% of total consumer loans. Typically, maximum loan to value (LTV) limits are 85% for primary residences and 70-80% for all other properties. At December 31, 2019, we had $484.2 million in total commitments for home equity lines of credit. Home equity lines of credit offer customers the convenience of checkbook and debit card access, and revolving credit features for a portion of the life of the loan and typically are more attractive in a low interest rate environment. Home equity lines of credit expose us to the risk that falling collateral values may leave us inadequately secured. This credit risk is mitigated as the loans amortize over time.
During 2019 we purchased certain second-lien home equity installment loans through our partnership with Spring EQ, LLC (Spring EQ). These select loans meet or exceed our current underwriting standards and are similar to home equity loans originated through our branch network. Also, during 2019, we grew student loans through our partnership with LendKey Technologies Inc. (LendKey). At December 31, 2019, the LendKey student loans totaled $133.7 million, which are primarily to consolidate existing student debt and are also underwritten in accordance with our current credit standards. The student loans portfolio also includes $127.7 million (as of December 31, 2019) of loans acquired from Beneficial, which are U.S. government guaranteed with little risk of credit loss.
The following table shows the composition of our consumer loan portfolio at year-end for the last five years:
| ||At December 31,|
|(Dollars in thousands)||Amount||Percent||Amount||Percent||Amount||Percent||Amount||Percent||Amount||Percent|
|Equity secured installment loans||$||374,961 || ||33.2 ||%||$||231,930 || ||34.1 ||%||$||148,212 || ||26.5 ||%||$||82,182 || ||18.3 ||%||$||89,218 || ||24.7 ||%|
|Home equity lines of credit||370,504 || ||32.8 || ||287,721 || ||42.3 || ||301,658 || ||54.0 || ||290,310 || ||64.5 || ||226,592 || ||62.9 || |
|Student loans||262,678 || ||23.3 || ||113,370 || ||16.6 || ||72,105 || ||12.9 || ||42,932 || ||9.5 || ||15,941 || ||4.4 || |
|Personal loans||93,171 || ||8.3 || ||23,274 || ||3.4 || ||21,401 || ||3.8 || ||22,007 || ||4.9 || ||17,604 || ||4.9 || |
|Unsecured lines of credit||13,954 || ||1.2 || ||16,677 || ||2.4 || ||12,194 || ||2.2 || ||10,613 || ||2.4 || ||9,244 || ||2.6 || |
|Other||13,463 || ||1.2 || ||7,967 || ||1.2 || ||2,923 || ||0.6 || ||1,985 || ||0.4 || ||1,650 || ||0.5 || |
|Total consumer loans||$||1,128,731 || ||100.0 ||%||$||680,939 || ||100.0 ||%||$||558,493 || ||100.0 ||%||$||450,029 || ||100.0 ||%||$||360,249 || ||100.0 ||%|
Loan Originations, Purchases and Sales
We engage in traditional lending activities primarily in Delaware, southeastern Pennsylvania, southern New Jersey, and contiguous areas of neighboring states. As a federal savings bank, however, we may originate, purchase and sell loans throughout the U.S. We purchase loans from outside our traditional lending area through our relationships with Spring EQ and LendKey, when such purchases are deemed appropriate. We originate fixed-rate and adjustable-rate residential loans through our banking offices and WSFS Mortgage, our mortgage banking company.
Commercial: We originate commercial real estate and commercial loans through our commercial lending division and SBA loan program. Commercial loans are made for working capital, financing equipment acquisitions, business expansion and other business purposes. During 2019, we originated $1.6 billion of commercial and commercial real estate loan exposures compared to $1.4 billion in 2018. To reduce our exposure on certain types of these loans, and/or to maintain relationships within internal lending limits, at times we will sell a portion of our commercial loan portfolio, typically through loan participations. Commercial loan sales totaled $21.9 million and $29.4 million in 2019 and 2018, respectively. These amounts represent gross contract amounts and do not necessarily reflect amounts outstanding on those loans. We also periodically buy loan participations from other banks. Commercial loan participation purchases totaled $56.9 million and $53.1 million in 2019 and 2018, respectively.
Any significant modification or additional exposure to one borrowing relationship exceeding $7.5 million must be approved by the Loan Committee. The Executive Committee of the Board of Directors reviews the minutes of the Loan Committee meetings. The Executive Committee also approves new credit exposures exceeding $20.0 million and new credit exposures in excess of $10.0 million for customers with higher risk profiles or larger existing relationship exposures. Depending upon their experience and management position, individual officers of the Bank have the authority to approve smaller loan amounts. Our credit policy includes a “House Limit” to any one borrowing relationship, which increased from $40.0 million to $70.0 million in March 2019 in connection with the Beneficial acquisition, consistent with overall growth in capital and the size of our loan portfolio. In rare circumstances, we will approve exceptions to the “House Limit.” Our policy allows for only 10 such relationships with an aggregate exposure of 10% of Tier I Capital plus ALLL. At December 31, 2019, two relationships exceeded the $70.0 million “House Limit.”
Residential and Consumer: During 2019, we originated $438.1 million of residential loans, compared with $325.1 million in 2018. From time to time, we have purchased whole loans and loan participations in accordance with our ongoing asset and liability management objectives. There were $6.5 million of purchases in 2019 as compared to no purchases in 2018. We sell most newly originated mortgage loans in the secondary market to generate fee income, to control the interest rate sensitivity of our balance sheet and to manage overall balance sheet mix. Residential loan sales totaled $375.2 million in 2019 and $300.6 million in 2018. We hold certain fixed-rate mortgage loans for investment, consistent with our current asset/liability management strategies and our relationship-based lending philosophy.
At December 31, 2019, we serviced $165.7 million of residential first mortgage loans and reverse mortgage loans for others, compared to $98.6 million at December 31, 2018. We also serviced residential first mortgage loans and reverse mortgage loans for our own portfolio totaling $1.0 billion and $218.1 million at December 31, 2019 and 2018 respectively. The increase in servicing portfolio during 2019 was primarily due to the Beneficial acquisition.
Our consumer lending activity is conducted through our branch offices, our partnerships with Spring EQ and LendKey and referrals from other parts of our business. We originate a variety of consumer credit products including home improvement loans, home equity lines of credit, automobile loans, unsecured lines of credit and other secured and unsecured personal installment loans.
We offer government-insured reverse mortgages to our customers. These loans do not close in our name and we process them as a reverse mortgage broker. During 2019 and 2018, we originated $0.6 million and $3.4 million in reverse mortgages, respectively.
Fee Income from Lending Activities
We earn fee income from lending activities, including fees for originating loans, servicing loans and selling loans and loan participations. We also receive fee income for making commitments to originate construction, residential and commercial real estate loans. Additionally, we collect fees related to existing loans which include prepayment charges, late charges, assumption fees and interest rate swap fees. As part of the loan application process, the borrower also may pay us for out-of-pocket costs to review the application, whether or not the loan is closed.
Most loan fees are not recognized in our Consolidated Statements of Income immediately, but are deferred as adjustments to yield in accordance with GAAP, and are reflected in interest income over the expected life of the loan. Those fees represented interest income of $7.1 million, $5.5 million and $5.1 million during 2019, 2018 and 2017 respectively. Loan fee income was mainly due to fee accretion on new and existing loans (including the acceleration of the accretion on loans that paid early), loan growth and prepayment penalties. The increase in loan fee income was concentrated in commercial and industrial and construction loans due to the associated growth in these portfolio categories.
LOAN LOSS EXPERIENCE, PROBLEM ASSETS AND DELINQUENCIES
Our results of operations can be negatively impacted by nonperforming assets, which include nonaccruing loans, other real estate owned and restructured loans. Nonaccruing loans are those on which the accrual of interest has ceased. Loans are placed on nonaccrual status immediately if, in our opinion, collection is doubtful, or when principal or interest is past due 90 days and collateral is insufficient to cover principal and interest payments. Interest accrued, but not collected at the date a loan is placed on nonaccrual status, is reversed and charged against interest income. In addition, the accretion of net deferred loan fees is suspended when a loan is placed on nonaccrual status. Subsequent cash receipts are applied either to the outstanding principal balance or recorded as interest income, depending on our assessment of the ultimate collectability of principal and interest.
We manage our portfolio to identify problem loans as promptly as possible and take immediate actions to minimize losses. To accomplish this, our Loan Administration and Risk Management Department monitors the asset quality of our loans and investments in real estate portfolios and reports such information to the Credit Policy, Audit and Executive Committees of the Board of Directors and the Bank’s Controller’s Department.
SOURCES OF FUNDS
We manage our liquidity risk and funding needs through our Treasury function and our Asset/Liability Committee. We have significant experience managing our funding needs through both borrowings and deposit growth.
As a financial institution, we and the Bank have access to several sources of funding. Among these are:
•Commercial and retail deposit programs
•Federal funds purchased
•Federal Home Loan Banks (FHLB) borrowings
•Federal Discount Window access
Our branch strategy has been focused on expanding our market penetration and retail footprint in Delaware, southeastern Pennsylvania and southern New Jersey and attracting new customers in part to provide additional deposit growth. Core customer deposit growth (customer deposits excluding CDs) was $3.2 billion during 2019, a 67% increase over 2018, primarily due to deposits acquired from Beneficial. Excluding $3.0 billion of core customer deposits acquired from Beneficial, core customer deposits increased $248.3 million in 2019, primarily due to increases of $192.8 million in money market accounts and $140.7 million in no- and low-cost checking deposit accounts, partially offset by a decrease of $85.2 million in savings deposits.
WSFS Bank is the largest locally-headquartered community bank in the Delaware and greater Philadelphia region. WSFS Bank primarily attracts deposits through its retail branch offices and loan production offices, in Delaware, southeastern Pennsylvania and southern New Jersey, as well as through our digital banking platforms.
WSFS Bank offers various deposit products to our customers, including savings accounts, demand deposits, interest-bearing demand deposits, money market deposit accounts and certificates of deposit. In addition, WSFS Bank accepts “jumbo” certificates of deposit with balances in excess of $100,000 from individuals, businesses and municipalities.
The following table shows the maturities of certificates of deposit of $100,000 or more as of December 31, 2019:
|(Dollars in Thousands)|
|Maturity Period||December 31, 2019|
|Less than 3 months||$||190,410 || |
|Over 3 months to 6 months||70,600 || |
|Over 6 months to 12 months||170,232 || |
|Over 12 months||187,919 || |
|Total||$||619,161 || |
Federal Home Loan Bank Advances
As a member of the FHLB, we are able to obtain FHLB advances. At December 31, 2019, we had $112.7 million in FHLB advances with a weighted average rate of 2.28%, compared with $328.5 million with a weighted average rate of 2.52% at December 31, 2018. Outstanding advances from the FHLB had rates ranging from 1.50% to 2.79% at December 31, 2019. Pursuant to collateral agreements with the FHLB, the advances are secured by qualifying first mortgage loans, qualifying fixed-income securities, FHLB stock and an interest-bearing demand deposit account with the FHLB. As a member of the FHLB, we are required to purchase and hold shares of capital stock in the FHLB in an amount at least equal to 0.10% of our member asset value plus 4.00% of advances outstanding. As of December 31, 2019, our FHLB stock investment totaled $21.1 million, compared with $19.3 million at December 31, 2018.
We received $1.5 million in dividends from the FHLB during both 2019 and 2018. For additional information regarding FHLB stock, see Note 13 to the Consolidated Financial Statements.
Trust Preferred Borrowings
In 2005, the Trust issued $67.0 million aggregate principal amount of Pooled Floating Rate Securities at a variable interest rate of 177 basis points over the three-month LIBOR rate. These securities are callable and have a maturity date of June 1, 2035.
Federal Funds Purchased and Securities Sold Under Agreements to Repurchase
During 2019 and 2018, we purchased federal funds as a short-term funding source. At December 31, 2019, we had purchased $195.0 million in federal funds at an average rate of 1.60%, compared to $158.0 million at an average rate of 2.52% at December 31, 2018. As of December 31, 2019 and 2018, we had no securities under agreements to repurchase as a funding source.
On June 13, 2016, we issued $100.0 million of the 2016 senior notes. The 2016 senior notes mature on June 15, 2026 and have a fixed coupon rate of 4.50% from issuance to but excluding June 15, 2021 and a variable coupon rate of three month LIBOR plus 3.30% from June 15, 2021 until maturity. The 2016 senior notes may be redeemed beginning on June 15, 2021 at 100% of principal plus accrued and unpaid interest. The proceeds remaining after the redemption of the 2012 notes are being used for general corporate purposes.
At December 31, 2019, we had 1,782 full-time equivalent Associates (employees). Our Associates are not represented by a collective bargaining unit. We believe our relationship with our Associates is very good, as evidenced by the results of our 2019 Associate engagement survey conducted by the Gallup organization which once again placed us solidly in the top quintile of Gallup clients worldwide. In addition, we were named a top workplace in Delaware for the 14th consecutive year in The News Journal’s ‘Top Workplaces’ survey of our Associates and a ‘Top Workplace’ in the greater Philadelphia market by The Philadelphia Inquirer for the fifth consecutive year. We were also honored to receive the Gallup ‘Great Workplace’ award for the fourth year in a row.
The Company and the Bank are subject to extensive federal and state banking laws, regulations, and policies that are intended primarily for the protection of depositors, the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (FDIC) and the banking system as a whole, and not for the protection of our other creditors and stockholders. The Office of the Comptroller of the Currency (OCC) is the Bank’s primary regulator and the Federal Reserve is the Company’s primary regulator. As of the first quarter of 2019, the Consumer Financial Protection Bureau (CFPB) regulates the Bank’s compliance with federal consumer financial protection laws.
The statutes enforced by, and regulations and policies of, these agencies affect most aspects of our business, including prescribing permissible types of activities and investments, the amount of required capital and reserves, requirements for branch offices, the permissible scope of our activities and various other requirements.
The Bank’s deposits are insured by the FDIC to the fullest extent allowed by law. As an insurer of bank deposits, the FDIC promulgates regulations, conducts examinations, requires the filing of reports and generally supervises the operations of all institutions to which it provides deposit insurance.
Financial Reform Legislation
The Dodd-Frank Act, which was enacted in 2010, imposed new restrictions and an expanded framework of regulatory oversight for financial institutions and their holding companies, including insured depository institutions. The law also established the CFPB as an independent bureau in the Federal Reserve System. Some of the provisions of the Dodd-Frank Act have increased our expenses, decreased our revenues, and changed the activities in which we engage.
In May 2018, the Economic Growth Act was signed into law. The Economic Growth Act amends portions of the Dodd-Frank in order to provide regulatory relief to banking organizations such as ourselves. However, several but not all of the reforms are limited to banking organizations with fewer than $10 billion in total consolidated assets. At December 31, 2018, we were below this ceiling. After our merger with Beneficial, which closed on March 1, 2019, our total consolidated assets at both the Company and Bank levels now exceed $10 billion, and thus we are not eligible for many of these changes, including relief from the Volcker Rule, potential relief from risk-based capital requirements, and possible relief from some mortgage lending rules.
One reform relating to the capital treatment of certain commercial real estate (CRE) loans will affect us, notwithstanding our asset size, the current Basel III Capital Rules require a banking organization to risk weight certain CRE loans that were determined to have high volatility at 150% rather than at 100% for other CRE loans. In order to avoid high volatility commercial real estate (HVCRE) status and the higher risk weight, a CRE loan had to meet several requirements, including an equity contribution form the borrower in the form of cash, unencumbered readily marketable assets, or paid development expenses out of pocket. A lender could not return the contribution to the borrower until the loan was paid off or replaced with permanent financing. The Economic Growth Act replaced the HVCRE category with a narrower category for HVCRE acquisition, development, and construction (HVCRE ADC) loans. Among other things, a borrower may now make the necessary equity contribution in the form or real property or improvements, and the lender may reclassify an HVCRE ADC loan more easily, enabling the lender to return the equity contribution to the borrower more quickly. The federal banking agencies issued a final rule in November 2019 to implement these changes. We have not yet determined the impact of these changes on our CRE loan portfolio.