UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Rule 14a-6(e)(2))
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[ ] Soliciting Material pursuant to ss.240.14a-12
WSFS FINANCIAL CORPORATION
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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WSFS Financial
Corporation
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500 Delaware Avenue
Wilmington, Delaware 19801
(302) 792-6000
Dear Stockholder:
The WSFS Financial Corporation 2007 Annual Meeting of Stockholders will be
held on April 26, 2007 beginning at 4:00 p.m. at the Hotel duPont located at
Eleventh and Market Streets in Wilmington, Delaware. Parking validation will be
provided for garage or valet parking at the hotel.
At the meeting, stockholders will act on the following matters:
>> The election of three directors to hold office until the 2010 Annual
Meeting of Stockholders;
>> The ratification of the appointment of KPMG LLP as the independent
registered public accountants for the fiscal year ending December 31,
2007;
>> The approval of an amendment to the WSFS Financial Corporation 2005
Incentive Plan to increase the number of shares available for award;
and
>> Such other matters as may properly come before the meeting or any
adjournment thereof.
All stockholders of record of shares of WSFS Financial Corporation common
stock at the close of business on March 7, 2007 are entitled to vote at the
meeting and this proxy statement and the enclosed proxy card were mailed to
stockholders on or about March 26, 2007.
Your vote is important regardless of how many shares of WSFS stock you own.
Even if you plan to attend the meeting, we urge you to ensure that your shares
are represented at the meeting by returning the enclosed proxy card. A return
envelope with pre-paid postage is enclosed for your convenience. Mark on your
proxy card how you wish your shares to be voted, and please be sure to sign and
date your proxy card. Returning your vote by proxy will not prevent you from
later voting in person if you do come to the meeting. Please note, however, that
if the stockholder of record for your shares is a broker, bank or other nominee
and you wish to vote at the meeting, you will need to obtain a proxy issued in
your own name from your stockholder of record.
Sincerely,
/s/Marvin N. Schoenhals
Marvin N. Schoenhals
Chairman, President and Chief Executive Officer
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WSFS Financial
Corporation
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Contents
1. About the Annual Meeting.............................................................. 1
2. Matters to be Voted on at the Meeting................................................. 4
3. The Proposed Increase in Shares Available for Awards Under the 2005 Incentive Plan.... 5
4. Directors and Officers of WSFS Financial Corporation and Wilmington
Savings Fund Society, FSB.......................................................... 13
5. Compensation.......................................................................... 19
6. Committees of the Board of Directors.................................................. 36
Executive Committee
Corporate Governance and Nominating Committee Audit Committee
Audit Committee Report
Personnel and Compensation Committee
Trust Committee
7. Compensation of the Board of Directors................................................ 41
8. Other Information..................................................................... 44
Audit Committee Charter.................................................................... Appendix A
i
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WSFS Financial
Corporation
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1. About the Annual Meeting
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What is the purpose of the Annual Meeting?
The WSFS Financial Corporation 2007 Annual Meeting of Stockholders will
be held at the Hotel duPont, Eleventh and Market Streets in Wilmington, Delaware
on April 26, 2007 at 4:00 p.m. The business to be conducted at the meeting is
the election of directors, the ratification of the appointment of KPMG LLP as
our independent registered public accountants and an approval for an amendment
to the WSFS Financial Corporation 2005 Incentive Plan to increase the number of
shares under the plan. There will be three board seats up for election at this
year's meeting, and we have nominated the persons currently filling those seats
for reelection: John F. Downey, Thomas P. Preston and Marvin N. Schoenhals. Each
is a longstanding director of WSFS Financial Corporation. You can find
information about all of our current directors on page 13.
Why are you sending me a proxy card? What are you going to do with it?
In order to hold the meeting, we need to have present, in person or by
proxy, the holders of a majority of WSFS common stock outstanding as of March 7,
2007, which was selected by the Board of Directors as the record date to
determine which stockholders will receive notice of the meeting and be entitled
to vote at the meeting. As of that date, there were 6,307,210 shares of WSFS
common stock outstanding. We are providing you with a proxy card so that your
shares can be counted as present at the meeting and can be voted at the meeting
even if you do not attend the meeting in person.
Your shares will be voted in accordance with your instructions on the
proxy card to vote either for or against each of the nominees for election as
directors, to vote for or against or abstain on the ratification of the
appointment of the independent registered public accountants and to vote for or
against or abstain on the amendment to the WSFS Financial Corporation 2005
Incentive Plan. If you sign and return the proxy card to us without indicating
how you wish to vote, we will vote your shares for each of the nominees, for the
ratification of the appointment of the independent registered public accountants
and for the approval of the amendment to the WSFS Financial Corporation 2005
Incentive Plan.
For those shares that we have been given a proxy we will have
discretionary authority to vote as we see fit on any procedural matters relating
to the conduct of the meeting. Furthermore, in the event that one or more of our
nominees is unable to stand for election as the result of an unexpected
occurrence, we may vote shares that we have a proxy for in favor of anyone we
select to be a substitute nominee. Alternatively, we may reduce the size of the
Board to eliminate the vacancy.
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Why did I receive more than one proxy card?
If you hold your shares of WSFS stock in more than one account or name,
you will receive multiple proxy cards and you must return a proxy card for each
account or name in order to vote all of your shares.
Can I revoke my proxy or change my vote?
Yes. You can change your vote at any time by completing and returning a
new proxy before the meeting. You may also revoke your proxy by sending a
written notice to WSFS Financial Corporation, Attention: Corporate Secretary,
WSFS Bank Center, 500 Delaware Avenue, Wilmington, Delaware 19801, or providing
written notice in person at the meeting. If you vote by proxy and then attend
the meeting, you do not need to vote again in person unless you want to change
your prior vote. Attending the meeting in person will not cancel your proxy
unless you vote in person at the meeting.
How many votes does a nominee need in order to be elected?
Directors are elected by plurality vote, meaning that the nominees who
receive the greatest number of votes are elected. You may vote for a nominee or
you may withhold your vote for a nominee. In a contested election, the number of
seats up for election is less than the number of persons nominated for election
as directors and the winning nominees are the ones who receive more votes than
the other nominees. In an uncontested election, there are enough seats up for
election for all of the nominees so all will be elected as directors regardless
of the number of votes they each receive. It is our policy, however, that in an
uncontested election any director who was elected by less than a majority of
votes in favor of their election should promptly offer to resign from the Board
and request the Board of Directors to accept or reject the resignation offer at
the Board's discretion. The Board's Corporate Governance Committee will consider
resignation offers and make its recommendation to the full Board. The Board will
within 90 days accept or reject the director's resignation offer.
How many votes do I have?
Each share of WSFS Financial Corporation common stock is entitled to
one vote. We do, however, permit cumulative voting in the election of directors,
meaning that if you have 100 shares and there are three seats up for election,
you have 300 votes to distribute among the nominees as you see fit. You can
distribute them equally and cast 100 votes for each nominee or you may give more
votes to certain nominees, even giving all 300 votes to a single nominee if you
wish. You must attend the meeting and vote in person if you want to cumulate
your vote for directors.
If you give us a proxy to vote your shares at the meeting, we will
distribute your votes among the nominees as we see fit. If you do not want us to
use cumulative voting for your shares, you may state that on your proxy card.
2
How many votes are required to ratify the appointment of the independent
registered public accountants?
To be ratified, the appointment of KPMG LLP as our independent
registered public accountants must receive a majority of the votes cast on that
proposal.
How many votes are required to approve the amendment to the WSFS Financial
Corporation 2005 Incentive Plan?
To be amended, the WSFS Financial Corporation 2005 Incentive Plan must
receive a favorable vote by a majority of all shares of WSFS common stock
outstanding as of the March 7, 2007 record date.
Will members of management and the Board of Directors be at the meeting?
Yes. Our policy is that all members of the Board of Directors and all
senior management officers should attend the annual meeting, and, except for Mr.
Hollowell and Mr. Preston, all were present at last year's annual meeting. We
expect that all directors will attend this year.
Can I ask questions at the meeting?
Yes. We see the annual meeting as an opportunity for stockholders to
have access to the Board of Directors and senior management in a public forum,
and we invite stockholders to submit questions or comments in advance of the
meeting. This is an important part of the process we have established for
stockholders to send communications to the Board of Directors as well as to
management.
While legal considerations and timing issues may prevent us from
answering all questions or addressing all comments, we believe this dialogue is
helpful in increasing our communication with our stockholders.
Please send questions to: WSFS Financial Corporation
Investor Relations
WSFS Bank Center
500 Delaware Avenue
Wilmington, Delaware 19801
or: stockholderrelations@wsfsbank.com
We will attempt to respond to as many of the questions and comments we
receive as possible. The questions, comments and responses will be posted on our
website at www.wsfsbank.com.
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The Board of Directors strongly encourages communications from
stockholders. Stockholders who wish to send communications to the Board of
Directors during the year may do so by writing to the attention of Charles G.
Cheleden, Vice Chairman and Lead Director, WSFS Bank Center, 500 Delaware
Avenue, Wilmington, Delaware 19801. In addition, all written communications from
stockholders received by management are shared with the Board no later than the
next regularly scheduled Board meeting.
If I have a proposal that I want the stockholders to vote on, how do I get it on
the agenda for the meeting?
The deadline has passed for this year's annual meeting - it is too late
to give us notice of a proposal that you would like to be brought before the
stockholders for a vote at the 2007 Annual Meeting of Stockholders. We expect to
hold the 2008 Annual Meeting in April 2008 and to mail our proxy statement
during March 2008. To get your proposal on the agenda for the 2008 Annual
Meeting, you must give us notice no sooner than December 27, 2007 and no later
than January 26, 2008. If you want your proposal to be included in our proxy
statement and on our proxy card for the 2008 Annual Meeting, we must receive
your proposal by November 27, 2007. All notices and proposals should be
addressed to the attention of the Corporate Secretary, WSFS Financial
Corporation, WSFS Bank Center, 500 Delaware Avenue, Wilmington, Delaware 19801.
2. Matters to be Voted on at the Meeting
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o Proposal Number One: Election of Directors
The Board of Directors is divided into three classes, and each class
serves for a term of three years. This year there are three directorships to be
filled at the meeting. We have nominated the following three persons for
election:
o John F. Downey
o Thomas P. Preston
o Marvin N. Schoenhals
The Board of Directors recommends a vote in favor of these nominees.
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o Proposal Number Two: Ratification of the Appointment of Independent
Registered Public Accounting Firm
KPMG LLP has served as our independent registered public accounting
firm since 1994. The Board of Directors has appointed KPMG LLP to continue to be
our independent registered public accounting firm for the current fiscal year
ending December 31, 2007. The Audit Committee evaluated the selection of KPMG
LLP and gave a recommendation to the Board in favor of KPMG LLP. We are asking
the stockholders to ratify the Board's decision to appoint KPMG LLP for the 2007
fiscal year.
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Representatives of KPMG LLP are expected to be present at the Annual
Meeting to respond to appropriate questions and will have the opportunity to
make a statement if they desire to do so.
The Board of Directors recommends a vote in favor of the ratification
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of KPMG LLP as the independent registered public accounting firm.
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o Proposal Number Three: Approval of an Amendment to the WSFS Financial
Corporation 2005 Incentive Plan
The WSFS Financial Corporation 2005 Incentive Plan was approved by
stockholders at our 2005 annual meeting. The purpose of the plan is to promote
the success of WSFS Financial Corporation by linking the personal interests of
WSFS Associates, officers and directors more closely to those of our
stockholders. The plan also gives WSFS Associates, officers and directors an
additional incentive for outstanding performance. Only 70, 212 shares of WSFS
Financial Corporation Common stock remain available for issuance under the
current plan.
We are asking stockholders to approve an amendment to the 2005
Incentive Plan to set the number of shares of WSFS Financial Corporation common
stock that may be issued to Associates, officers and directors pursuant to
awards granted under the plan at 862,000 shares. The plan provides that each
share issued under the plan pursuant to an award other than a stock option or
stock appreciation right shall reduce the number of available shares under the
plan by four shares.
More information about the plan and the proposed amendment to set the
number of shares available under the plan at 862,000 shares is set forth below
under "The Proposed Increase in Shares Available for Award Under the 2005
Incentive Plan."
3. The Proposed Increase in Shares Available for
Awards under the 2005 Incentive Plan
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We are asking stockholders to approve an amendment to the WSFS
Financial Corporation 2005 Incentive Plan to set the number of shares of WSFS
Financial Corporation common stock that may be issued to Associates, officers
and directors pursuant to awards granted under the plan at 862,000 shares. The
plan provides that each share issued under the plan pursuant to an award other
than a stock option or stock appreciation right shall reduce the number of
available shares under the plan by four shares. As of December 31, 2006, the
number of shares of WSFS Financial Corporation common stock that were still
available for new awards under the 2005 Incentive Plan was 70,212. The proposed
amendment would increase the number of shares available for new awards by
462,000, so that 532,212 shares would be available.
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The Board of Directors unanimously approved the proposed amendment to
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the 2005 Incentive Plan to increase the number of shares available for award and
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believes that the amendment is in the best interest of WSFS Financial
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Corporation and its stockholders. The Board recommends that stockholders vote
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"FOR" the amendment.
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Below is a summary of the plan's features and an explanation of the
income tax consequences of awards under the plan to WSFS Financial Corporation
and the Associates, officers and directors. A copy of the full plan was attached
as Appendix A to the proxy statement for the 2005 annual meeting, when the plan
was approved by the stockholders. A copy of that proxy statement can be found on
the investor relations page of our website www.wsfsbank.com (select "Investor
Relations" on the menu found under "About WSFS" and click on "Documents/SEC
Filings").
The proposed amendment to the plan will only change the number of
shares of WSFS Financial Corporation common stock that may be awarded under the
plan. No other changes are being made to the plan at this time.
At the present time we have two compensation plans under which shares
of WSFS Financial Corporation common stock may be issued: the 2005 Incentive
Plan and the 1997 Stock Option Plan. As of December 31, 2006, the aggregate
number of unexercised options outstanding under our plans was 700,427, with a
weighted average exercise price of $39.50. Options granted in the past under the
1997 Plan may still be exercised, but no new awards may be made under this plan.
Currently, we have only the 2005 Incentive Plan available to make new awards. As
of December 31, 2006, the number of shares of WSFS Financial Corporation common
stock that were still available for new awards under the 2005 Incentive Plan was
70,212. The proposed amendment would increase the number of shares available for
new awards by 462,000, so that 532,212 shares would be available.
Summary of the Plan
Permissible Awards. All Associates, officers and directors are eligible
to receive awards under the plan. Currently, there is a group of 87 Associates,
officers and directors who have awards outstanding. The plan authorizes the
granting of awards in any of the following forms:
o options to purchase shares of WSFS Financial Corporation common
stock;
o stock appreciation rights, which equal the increase in the fair
market value of a share of WSFS Financial Corporation common
stock between the date of the grant and the date the stock
appreciation right is exercised;
o performance awards, which are payable in cash or shares of WSFS
Financial Corporation common stock upon the attainment of
performance goals set by the Personnel and Compensation
Committee;
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o shares of WSFS Financial Corporation common stock that are
subject to a vesting period and subject to forfeiture in
accordance with terms set by the Personnel and Compensation
Committee;
o WSFS Financial Corporation common stock units, which represent
the right to receive shares of WSFS Financial Corporation common
stock (or an equivalent value in cash or other property) in the
future, based upon the attainment of vesting and/or performance
criteria set by the Personnel and Compensation Committee;
o deferred stock units, which represent the right to receive shares
of WSFS Financial Corporation common stock (or an equivalent
value in cash or other property) in the future;
o dividend equivalents, which represent a payment equal to any
dividends paid on outstanding WSFS Financial Corporation common
stock (or an equivalent value payable in stock or other property)
for each share of WSFS Financial Corporation common stock
underlying an award;
o other stock-based awards in the discretion of the Personnel and
Compensation Committee, including grants of shares of the WSFS
Financial Corporation common stock that are not subject to a
vesting period or forfeiture; and
o cash awards.
The stock options granted under the plan may be either non-statutory
stock options or incentive stock options. The difference in the tax treatment of
non-statutory stock options and incentive stock options is explained below
"Income Tax Consequences of Awards Under the Plan."
Shares Available for Awards. Subject to adjustment as a result of
changes in the capital structure as provided in Article 15 of the plan, the
aggregate number of shares of WSFS Financial Corporation common stock reserved
for issuance pursuant to awards granted under the plan is currently 400,000, and
each share issued under the plan pursuant to an award other than an option or
stock appreciation right shall reduce the number of available shares under the
plan by four shares. If the proposed amendment is approved by stockholders at
the 2007 annual meeting, the aggregate number of shares reserved for issuance
pursuant to awards granted under the plan will increase by 462,000 and will
become 862,000. Shares issued under the plan pursuant to an award other than an
option or stock appreciation right will continue to reduce the number of
available shares under the plan by four shares.
Limitations on Awards. During any single calendar year, no one person
may be granted stock options and/or stock appreciation rights under the plan for
more than 50,000 shares of WSFS Financial Corporation common stock. In addition,
there is an annual limit on the number of shares of common stock that may be
granted under the plan in the form of restricted stock, restricted stock units,
deferred stock units, performance shares or other stock-based awards; no more
than 50,000 shares of WSFS Financial Corporation common stock to any one person
in a
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single calendar year. The plan limits the aggregate dollar value of any
performance-based cash award that may be paid to any one person during any
single calendar year to $2.0 million. The plan limits the aggregate maximum fair
market value (measured as of the grant date) of any other awards that may be
granted to any one person (less any consideration paid by the person for such
award) during any single calendar year to $2.0 million.
Administration. The Personnel and Compensation Committee administers
the plan and has the authority to:
o designate individuals;
o determine the type or types of awards to be granted to each
individual and the number, terms and conditions thereof;
o establish, adopt or revise any rules and regulations as it may
deem advisable to administer the plan; and
o make all other decisions and determinations that may be required
under the plan.
Performance Goals. All options and stock appreciation rights granted
under the plan are exempt from the $1.0 million deduction limit imposed by the
federal tax laws. The Personnel and Compensation Committee may designate any
other award granted under the plan as a qualified performance-based award in
order to make the award fully deductible without regard to such limit.
If an award is designated as exempt from the deduction limit, the
Personnel and Compensation Committee establishes objective criteria to determine
if a performance goal has been met. The criteria may be expressed in terms of
company-wide objectives or in terms of objectives that relate to the performance
of a particular division, business unit, affiliate, department or function. The
following criteria may be used:
o Revenue
o Sales
o Profit (net profit, gross profit, operating profit, economic
profit, profit margins or other corporate profit measures)
o Earnings (EBIT, EBITDA, earnings per share, or other corporate
earnings measures)
o Earnings per share growth
o Net income (before or after taxes, operating income or other
income measures)
o Cash (cash flow, cash generation or other cash measures)
o Stock price or performance
o Total stockholder return (stock price appreciation plus
reinvested dividends divided by beginning share price)
o Return measures (including, but not limited to, return on assets,
capital, equity, or sales, and cash flow return on assets,
capital, equity, or sales);
o Market share
o Improvements in capital structure
o Expenses (expense management, expense ratio, expense efficiency
ratios or other expense measures)
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o Business expansion or consolidation (acquisitions and
divestitures)
o Internal rate of return or increase in net present value
o Working capital targets relating to inventory and/or accounts
receivable
o Planning accuracy (as measured by comparing planned results to
actual results)
The Personnel and Compensation Committee establishes such goals before
the beginning of the period for which the performance goal relates (or such
later date as may be permitted under applicable tax regulations). The Committee
may for any reason reduce (but not increase) any award, notwithstanding the
achievement of a specified goal.
Limitations on Transfer. No award under the plan may be assigned or
transferred other than by will or the laws of descent and distribution or
(except in the case of an incentive stock option) pursuant to a qualified
domestic relations order; provided, however, that the Personnel and Compensation
Committee may permit other transfers where it concludes that a transfer does not
result in accelerated taxation, does not cause any option intended to be an
incentive stock option to fail to qualify as an incentive stock option, and is
otherwise appropriate and desirable, taking into account any factors deemed
relevant, including without limitation, any state or federal tax or securities
laws or regulations applicable to transferable awards.
Acceleration Upon Certain Events. Generally, if an individual's service
terminates by reason of death, disability or retirement:
o all of his or her outstanding options, stock appreciation rights
and other awards in the nature of rights that may be exercised
become fully vested and exercisable;
o all time-based vesting restrictions on his or her outstanding
awards lapse;
o the target payout opportunities attainable under all outstanding
performance-based awards are deemed to have been fully earned as
of the date of termination based upon an assumed achievement of
all relevant performance goals at the "target" level; and
o there is a pro rata payout to the individual or his or her estate
within 30 days after date of termination based upon the length of
time within the performance period that has elapsed prior to the
date of termination.
If an individual is terminated without cause or resigns for good reason
(as such terms are defined in the plan) within two years after a change in
control, all of such individual's outstanding options, stock appreciation rights
and other awards in the nature of rights that may be exercised become fully
vested and exercisable and all time-based vesting restrictions on his or her
outstanding awards lapse. Except as otherwise provided in an award certificate,
upon the occurrence of a change in control, the target payout opportunities
attainable under all outstanding performance-based awards would be deemed to
have been fully earned as of the effective date of the change in control and pro
rata payouts to individuals would be made within 30 days after the effective
date of the change in control based upon an assumed achievement of all relevant
targeted performance goals and upon the length of time within the performance
period that has
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elapsed prior to the change in control. In addition, subject to limitations
applicable to certain qualified performance-based awards, the Personnel and
Compensation Committee may accelerate awards for any other reason in its
discretion. The Personnel and Compensation Committee may discriminate among
individuals or among awards in exercising such discretion.
Adjustments. In the event of a stock split, a dividend payable in
shares of common stock, or a combination or consolidation of the common stock
into a lesser number of shares, the share authorization limits under the plan
will automatically be adjusted proportionately, and the shares then subject to
each award will automatically be adjusted proportionately without any change in
the aggregate purchase price for such award. If we are involved in another
corporate transaction or event that affects the common stock, such as an
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, split-up, spin-off, combination or exchange of shares, the share
authorization limits under the plan will be adjusted proportionately, and the
Personnel and Compensation Committee may adjust outstanding awards to preserve
the benefits or potential benefits of the awards.
Termination and Amendment. The Board of Directors or the Personnel and
Compensation Committee may, at any time and from time to time, terminate or
amend the plan. Approval of the WSFS Financial Corporation stockholders is
required for any amendment to the plan that would:
o materially increase the benefits accruing to individuals,
o materially increase the number of shares of stock issuable under
the plan,
o expand the types of awards provided under the plan,
o materially expand the class of individuals eligible to
participate in the plan,
o materially extend the term of the plan
o or otherwise constitute a material amendment to the plan.
No termination or amendment of the plan may adversely affect any award
previously granted under the plan without the written consent of the individual.
Prohibition on Repricing. Outstanding stock options cannot be repriced,
directly or indirectly, without approval of the WSFS Financial Corporation
stockholders. The exchange of an "underwater" option (i.e., an option having an
exercise price in excess of the current market value of the underling stock) for
another award would be considered an indirect repricing and would, therefore,
require stockholder approval.
Certain Federal Tax Effects
Non-statutory Stock Options. There will be no federal income tax
consequences to WSFS Financial Corporation or an individual who receives a
non-statutory stock option under the plan. When an individual exercises a
non-statutory option, however, he or she will recognize ordinary income in an
amount equal to the excess of the fair market value of the common stock received
upon exercise of the option at the time of exercise over the exercise price, and
WSFS Financial Corporation will be allowed a corresponding deduction. Any gain
that the individual
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realizes when he or she later sells or disposes of the option shares will be
short-term or long-term capital gain, depending on how long the shares were
held.
Incentive Stock Options. There typically will be no federal income tax
consequences to WSFS Financial Corporation or an individual upon the grant or
exercise of an incentive stock option. If the individual holds the option shares
for the required holding period of at least two years after the date the option
was granted or one year after exercise, the difference between the exercise
price and the amount realized upon sale or disposition of the option shares will
be long-term capital gain or loss, and WSFS Financial Corporation will not be
entitled to a federal income tax deduction. If the individual disposes of the
option shares in a sale, exchange, or other disqualifying disposition before the
required holding period ends, he or she will recognize taxable ordinary income
in an amount equal to the excess of the fair market value of the option shares
at the time of exercise over the exercise price, and WSFS Financial Corporation
will be allowed a federal income tax deduction equal to such amount. While the
exercise of an incentive stock option does not result in current taxable income,
the excess of the fair market value of the option shares at the time of exercise
over the exercise price will be an item of adjustment for purposes of
determining the individual's alternative minimum taxable income.
Stock Appreciation Rights. An individual receiving a stock appreciation
right under the plan will not recognize income, and WSFS Financial Corporation
will not be allowed a tax deduction, at the time the award is granted. When the
individual exercises the stock appreciation right, the amount of cash and the
fair market value of any shares of common stock received will be ordinary income
to the individual and WSFS Financial Corporation will be allowed as a
corresponding federal income tax deduction at that time.
Restricted Stock. Provided that the award is nontransferable and is
subject to a substantial risk of forfeiture, an individual will not recognize
income upon the grant of a restricted stock award and WSFS Financial Corporation
will not be allowed a tax deduction if the individual does not elect to
accelerate recognition of the income to the date of grant. When the restrictions
lapse, the individual will recognize ordinary income equal to the fair market
value of the common stock as of that date (less any amount he or she paid for
the stock), and WSFS Financial Corporation will be allowed a corresponding
federal income tax deduction at that time, subject to any applicable limitations
under the federal tax laws. If the individual elects to accelerate recognition
of the income to the date of grant, he or she will recognize ordinary income at
the time of the grant in an amount equal to the fair market value of the stock
on that date (less any amount paid for the stock), and WSFS Financial
Corporation will be allowed a corresponding federal income tax deduction at that
time, subject to any applicable limitations under the federal tax laws. Any
future appreciation in the stock will be taxable to the individual at capital
gains rates. However, if the stock is later forfeited, the individual will not
be able to recover the tax previously paid pursuant to the acceleration.
Restricted or Deferred Stock Units. An individual will not recognize
income upon the grant of a stock unit award and WSFS Financial Corporation will
not be allowed a tax deduction. Upon receipt of shares of common stock (or the
equivalent value in cash or other property) in settlement of a stock unit award,
an individual will recognize ordinary income equal to the fair market value of
the common stock or other property as of that date (less any amount he or she
paid for the stock or property), and WSFS Financial Corporation will be allowed
a corresponding
11
federal income tax deduction at that time, subject to any applicable limitations
under federal tax law.
Performance Awards. An individual generally will not recognize income
upon the grant of a performance award and WSFS Financial Corporation will not be
allowed a tax deduction. Upon receipt of shares of cash, stock or other property
in settlement of a performance award, the cash amount or the fair market value
of the stock or other property will be ordinary income to the individual, and
WSFS Financial Corporation will be allowed a corresponding federal income tax
deduction at that time, subject to any applicable limitations under federal tax
laws.
Dividend Equivalent Rights. An individual will recognize income upon
the receipt of a dividend in connection with dividend equivalent rights and WSFS
Financial Corporation will recognize a corresponding tax deduction at the time
the dividend is paid.
Equity Compensation Plan Information
The following table shows the aggregate number of unexercised options
outstanding as of December 31, 2006, the weighted average exercise price, and
the number of shares of WSFS Financial Corporation common stock that as of
December 31, 2006 were still available for new awards under the 2005 Incentive
Plan. The proposed amendment would increase the number of shares available for
new awards by 462,000, so that 532,212 shares would be available.
(a) (b) (c)
Number of securities
remaining available
for future issuance
Number of securities Weighted-average under equity
to be issued upon exercise price of compensation plans
exercise of outstanding options, (excluding securities
outstanding options, warrants reflected in
warrants and rights and rights column (a))
------------------- ---------- -----------
Equity compensation plans
approved by shareholders(1) 700,427 $ 39.50 70,212
Equity compensation plans not
approved by shareholders(2) - - -
------------------- ----------------- ------------------
Total 700,427 $ 39.50 70,212
=================== ================= ==================
____________
(1) Plans approved by shareholders include the 1997 Stock Option Plan and the
2005 Incentive Plan.
(2) There are no equity compensation plans to disclose. Stockholders have
approved all of the plans under which shares of WSFS Financial Corporation
common stock may be issued.
12
4. Directors and Officers of WSFS Financial Corporation
and Wilmington Savings Fund Society, FSB
----------------------------------------
Listed below is information about our directors and senior management
officers. Currently, all directors of WSFS Financial Corporation also serve as
directors for its subsidiary, Wilmington Savings Fund Society, FSB (which we
generally refer to as WSFS Bank).
Current Directors: Marvin N. Schoenhals, Charles G. Cheleden, John F. Downey,
-----------------
Linda C. Drake, David E. Hollowell, Joseph R. Julian, Dennis E. Klima, Calvert
A. Morgan, Jr., Thomas P. Preston, Scott E. Reed, Claibourne D. Smith and R. Ted
Weschler.
Marvin N. Schoenhals > Chairman of WSFS Financial Corporation and WSFS Bank since 1992
> President and CEO of WSFS Financial Corporation and WSFS Bank,
1990 to 2007
> age 59
> WSFS Financial Corporation director since 1990
current term expires at the 2007 Annual Meeting of Stockholders
> Mr. Schoenhals also serves as a director of:
Federal Home Loan Bank of Pittsburgh (Chairman)
Delaware State Chamber of Commerce
Charles G. Cheleden > Attorney
> age 63
> Vice Chairman of WSFS Financial Corporation since 1992
> Lead Director of WSFS Financial Corporation since 2004
> WSFS Financial Corporation director since 1990
current term expires at the 2008 Annual Meeting of Stockholders
John F. Downey > Executive Director of the Office of Thrift Supervision from 1989 to 1998
> age 69
> WSFS Financial Corporation director since 1998
current term expires at the 2007 Annual Meeting of Stockholders
Linda C. Drake > Founder and Chair of TCIM Services, Inc.
(a business services and software technology provider)
> age 58
> WSFS Financial Corporation director since 1999
current term expires at the 2009 Annual Meeting of Stockholders
> Ms. Drake also serves as a director of: LTD Direct
David E. Hollowell > Executive Vice President and University Treasurer of the University Delaware
> age 59
> WSFS Financial Corporation director since 1996
current term expires at the 2009 Annual Meeting of Stockholders
13
Joseph R. Julian > Chairman and CEO of JJID, Inc, a highway construction company
> age 69
> WSFS Financial Corporation director since 1983
current term expires at the 2008 Annual Meeting of Stockholders
Dennis E. Klima > President, CEO and director of Bayhealth, Inc.
> Chairman, CEO and director of Bayhealth Medical Center, Inc.
> age 62
> WSFS Financial Corporation director since 2004
current term expires at the 2008 Annual Meeting of Stockholders
Calvert A. Morgan, Jr. > Consultant
> Former Chairman, President and CEO of PNC Bank, Delaware
> age 58
> Vice Chairman WSFS Bank since 2006
> WSFS Financial Corporation director since 2004
current term expires at the 2008 Annual Meeting of Stockholders
> Mr. Morgan also serves as a director of: Chesapeake Utilities Corporation
Thomas P. Preston > Attorney, partner with the law firm of Blank Rome, LLP
> age 60
> WSFS Financial Corporation director since 1990
current term expires at the 2007 Annual Meeting of Stockholders
Scott E. Reed > Senior Executive Vice President and Chief Financial Officer of BB&T
Corporation (financial holding company and parent of Branch Banking and
Trust Company) from 1972 to 2005
> age 58
> WSFS Financial Corporation director since 2005
current term expires at the 2009 Annual Meeting of Stockholders
Claibourne D. Smith > Vice President - Technology and Professional Development for E.I. du Pont
de Nemours & Company, Incorporated from 1964 to 1998
> age 68
> WSFS Financial Corporation director since 1994
current term expires at the 2009 Annual Meeting of Stockholders
R. Ted Weschler > Managing Member of Peninsula Capital Advisors, LLC
> age 45
> WSFS Financial Corporation director since 1992
current term expires at the 2007 Annual Meeting of Stockholders
> Mr. Weschler is retiring from the Board.
> Mr. Weschler also serves as a director for Wilsons The Leather Experts Inc.
Senior Management: Mark A. Turner, Joseph A. Blair, Stephen A. Fowle, Rodger Levenson,
----------------- Deborah A. Powell and Richard M. Wright
14
Mark A. Turner > Chief Operating Officer/Secretary of WSFS Financial Corporation and WSFS
Bank, 2001 to 2007
> Chief Financial Officer of WSFS Financial Corporation and WSFS Bank,
1998 to 2004
> age 43
> Mr. Turner joined WSFS Financial Corporation and WSFS Bank in 1996 as
Managing Vice President and Controller. From 1994 to 1996, he was Vice
President of Finance for the Capital Markets Division of Meridian Bank, and
Vice President of Corporate Development for Meridian Bancorp, both in
Reading, Pennsylvania. Before that, he was a Senior Audit Manager with
KPMG LLP in Philadelphia, Pennsylvania.
Joseph A. Blair < Executive Vice President for the Wealth Management Division of WSFS
Bank since 2005
> age 54
> From 2004 to 2005, Mr. Blair was President and CEO, Commerce Capital
Markets, Inc. and from 1999 to 2004 he was an Executive Vice President at
Advest Inc,
Stephen A. Fowle > Executive Vice President and Chief Financial Officer of WSFS Financial
Corporation and WSFS Bank since 2005
> age 41
> From 2000 to 2004, Mr. Fowle was Chief Financial Officer at Third Federal
Savings and Loan Association of Cleveland, MHC, in Cleveland, Ohio. From
1994 to 2000, Mr. Fowle was Vice President of Corporate Finance at Robert
W. Baird & Co, Incorporated in Milwaukee, Wisconsin, a regional investment
banking firm.
Rodger Levenson > Executive Vice President/Director of Commercial Banking for WSFS Bank
since 2006
> age 45
> From 2003 to 2006 Mr. Levenson was Senior Vice President and Manager at
Citizens Bank and from 1986 to 2003 he held a number of positions at
Wachovia Bank.
Deborah A. Powell > Executive Vice President/ Director of Human Resources for WSFS Bank
since 2000
> age 50
> From 1997 to 2000, Ms Powell was Vice President of Human Resources at
Huffy Service First, a national retail services company. From 1996 to
1997, she was Human Resources Manager of The Limited-Alliance Data System, a
retail call-center operation. From 1991 to 1996, she was National Practice
Director of Midwest Resources, Inc., a Human Resources and Organizational
Development consulting practice.
> Ms Powell has resigned effective April 3, 2007
Richard M. Wright > Executive Vice President/Director of Retail Banking for WSFS Bank since
2006
> age 54
> From 2003 to 2006 Mr. Wright was Executive Vice President, Retail Banking
and Marketing for DNB First in Downingtown, PA.
15
Ownership of WSFS Financial Corporation Common Stock
----------------------------------------------------
The number of shares of WSFS Financial Corporation common stock owned
by the directors and senior management officers as of March 7, 2007, the record
date set for the 2007 Annual Meeting of Stockholders, is shown below. The table
also shows the amount of their shares as a percentage of all of the shares of
WSFS Financial Corporation common stock that are outstanding.
Shares that these individuals could acquire by exercising stock options
are included in the amounts shown. The individuals do not all have the same
number of options, and the different amounts are shown below the table. Only
options that are currently exercisable or that will become exercisable in the
next 60 days have been treated as though the options have been exercised and the
individual owns those shares.
16
Number of Percentage of
shares (including WSFS Financial Corporation
exercisable options*) common stock outstanding
-------------------------------------------------------------------------------------------------------
Directors: Marvin N. Schoenhals 157,787 shares 2.46 %
Charles G. Cheleden 15,450 shares 0.24 %
John F. Downey 12,550 shares 0.20 %
Linda C. Drake 11,450 shares 0.18 %
David E. Hollowell 14,770 shares 0.23 %
Joseph R. Julian 71,326 shares 1.13 %
Dennis E. Klima 5,100 shares 0.08 %
Calvert A. Morgan, Jr. 6,550 shares 0.10 %
Thomas P. Preston 12,842 shares 0.20 %
Scott E. Reed 2,050 shares 0.03 %
Claibourne D. Smith 11,080 shares 0.18 %
R. Ted Weschler 11,750 shares 0.19 %
Senior
Management: Mark A. Turner 118,926 shares 1.86 %
Joseph A. Blair 1,485 shares 0.02 %
Stephen A. Fowle 5,140 shares 0.08 %
Rodger Levenson - shares 0.00 %
Deborah A. Powell 7,086 shares 0.11 %
Richard M. Wright 918 shares 0.01 %
Directors and senior management
as a group (18 persons) 466,260 shares 7.10 %
_____________________
* Includes exercisable options for each of the individuals as follows:
Schoenhals: 108,725, Cheleden: 6,850, Downey: 6,850, Drake: 5,850,
Hollowell: 3,170, Julian: 6,850, Klima: 750, Morgan: 2,750, Preston: 4,330,
Reed: 350, Smith: 4,850, Weschler: 6,850, Turner: 91,275, Fowle: 2,150,
Blair: 1,265, Powell: 4,225, and Wright: 725.
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
Our officers and directors are required to file forms with the
Securities and Exchange Commission (the SEC) to report changes in their
ownership of WSFS Financial Corporation common stock. The forms must be filed
with the SEC generally within two business days of the date of the trade. To our
knowledge, the only late filings during 2006 were by Ms Powell who was late in
reporting that she sold the following shares on the dates shown: 800 shares on
December 14, 2006, 800 shares on December 18, 2006, 1,877 shares on December 21,
2006 and 1,877 shares on December 22, 2006.
17
Transactions with Our Insiders
------------------------------
In the ordinary course of its business as a bank, WSFS Bank makes loans
to our directors, officers and employees. These loans are subject to limitations
and restrictions under federal banking laws and regulations and are made on
substantially the same terms, including interest rate and collateral, as those
prevailing at the time for comparable transactions with other persons. These
loans do not involve more than the normal risk of collectibility or present
other unfavorable features to WSFS Bank.
We carefully evaluate any circumstances, transactions or relationships
that we feel could have an impact on whether the members of our Board of
Directors are independent of WSFS Financial Corporation and its subsidiaries,
including WSFS Bank, and are able to conduct their duties and responsibilities
as directors without any personal interests that would interfere or conflict
with those duties and responsibilities.
All of our directors other than Mr. Schoenhals and Mr. Morgan are
independent. Mr. Schoenhals is an Associate of WSFS Financial Corporation and
WSFS Bank and is not independent by virtue of not being an outside director. Mr.
Morgan is not an independent director because at the time he became a director
he was also hired to serve as a special consultant to the Board and to
management. Mr. Morgan has 36 years experience in the banking industry in
Delaware and was formerly Chairman, President and CEO of PNC Bank, Delaware. The
Board felt that with his background, market knowledge, customer relationships
and community involvement, Mr. Morgan could provide significant benefits as a
consultant and that it would be appropriate for him to be retained as a
consultant as well as serving on the Board. Information about Mr. Morgan's
compensation in his capacity as a consultant can be found on page 43.
18
5. Compensation
------------
COMPENSATION DISCUSSION AND ANALYSIS
The following discussion and analysis of our compensation programs is
intended to help you understand our compensation policies and how we make
decisions regarding the compensation of our executive management. This section
focuses on the material principles on which we have based our compensation
program and the main factors we consider in setting the different elements of
executive management compensation.
The Role of the Personnel and Compensation Committee of the Board
Our Personnel and Compensation Committee (the "Committee") provides Board
oversight and guidance with respect to the CEO and other Executives'
compensation, benefits and perquisites. The Committee's primary responsibilities
include:
o Approve and report to the Board salary levels and incentive
compensation payable to the senior officers and other key
Associates of the Company
o Recommend to the Board of Directors the establishment of
incentive compensation plans and programs
o Recommend to the Board of Directors the adoption and
administration of certain Associate benefit plans and programs of
the Company
o Approve and report to the Board payment of additional year-end
contributions by the Company under certain of its retirement
plans
o Oversee the Company's stock incentive plans
o Approve and report to the Board stock incentive awards granted to
key Associates of the Company
o Annually, review and recommend to the Board performance goals and
objectives with respect to the compensation of the Chief
Executive Officer consistent with approved compensation plans.
Further, recommend to the Board compensation levels for the CEO,
Office of the Chief Executive Officer and all Executive Vice
Presidents of the Company
o Determine whether to retain or terminate any compensation
consulting firm used by the Company to assist in the evaluation
of director, CEO or senior executive compensation. Exercise sole
authority to approve the terms and fees relating to such
retention
o Perform such other functions as are from time to time assigned by
the Board.
The role of our management is to provide recommendations for the
Committee's consideration and to manage the company's compensation programs and
policies including:
o Reviewing compensation programs for competitiveness and alignment
with WSFS' strategic goals,
o Recommending changes, where appropriate,
o Recommending pay levels and plan payout for executives other than
the CEO.
19
From time to time, the Committee and management have retained the
services of compensation consultants to assist in the design of compensation
plans and evaluate compensation levels for competitiveness.
What We Are Trying to Achieve With Our Compensation Program
Our compensation programs are designed to attract and retain key
Associates by providing total compensation opportunity that is performance based
and competitive with alternatives available to these executives. Our programs
provide incentives that reward superior performance consistent with the
interests of our shareholders and with the highest professional and ethical
standards.
The compensation of our executive officers should reflect their success
as a management team in attaining key operating objectives such as return on
assets, return on equity and earnings per share growth. Our philosophy is for
executive compensation to be competitive with those of our peer companies, with
the opportunity for extraordinary compensation for extraordinary performance.
What Our Compensation Program is Designed to Reward
The Committee measures and rewards the executive officers' contribution
through a number of factors including the Company's financial performance based
on pre-determined metrics and attainment of specific personal goals.
Our stock price is not a factor in setting specific payout levels for
short-term compensation programs because the price of our stock is subject to a
number of factors outside the control of management. Over time, the Committee
believes strong operational results will be reflected in our stock price, but
the Committee does not wish to encourage or reward short-term focus on our stock
price to the potential detriment of achieving corporate goals and objectives
that enhance long-term shareholder value. Additionally, equity-based
compensation awards are provided to reinforce alignment of executive performance
with the creation of shareholder value.
Elements of our Compensation Plan and Why We Chose Each Element
The Committee is responsible for establishing the components and amount
of compensation paid to our CEO and Executives. The Committee looks at various
factors in evaluating this compensation, including:
o What has the executive's performance been for both the current
year and prior years?
o What is the executive's potential for future development and what
is the executives potential to add to the long-term value of the
company?
o What is the executive's immediate level of responsibility?
o How much experience does the executive have within his or her
current discipline?
20
The annual compensation of our executive officers consists of the
following elements:
1. Base Salary
Base salaries are established by comparing our executives'
qualifications, experience and responsibilities as well as individual
performance and value to the company with similar positions at our
peers in order to provide market competitiveness. Internal equity is
also a consideration.
2. Bonus
Our executives are eligible for an annual bonus under our Management
Incentive Plan (or "MIP") designed to reward for personal performance,
performance of the Company and superior performance as compared to our
peers. From time to time, an executive may be eligible for a special
bonus based on a specific event for which the executive was
responsible. From time to time, the Committee or the Board authorizes
special incentive compensation plans for executives who lead
non-traditional divisions of the Company. These additional plans reward
executives, who are in a more entrepreneurial setting, for creating
strong growth and additional value to the Company. The compensation
earned from these plans may be more or less than the incentive
compensation paid to our Named Executive Officers (see page 26 for our
definition of Named Executive Officers).
3. Equity-based Compensation
Our equity-based compensation plan is the primary method by which we
provide long-term incentives to our executives. Stock options are
typically awarded annually to our executives. We believe the granting
of stock options aligns the interests of our executives more closely
with those of our stockholders. Other forms of equity compensation are
available for award under our plan. However, in the recent past, our
Named Executive Officers have received only stock option awards under
our plan.
4. 401(k) Employer Contribution
We provide a 401(K) program to encourage Associates to contribute a
portion of their pre-tax earnings towards investments. We offer a
Company match to all Associates enrolled in our 401(k) plan to
encourage Associates to share the responsibility for investing for
their retirement. The Company matches the first 5% of an Associate's
contribution dollar-for-dollar up to IRS limitations. In addition, the
Company may contribute a discretionary profit sharing component to all
eligible Associates, typically 2% of an Associate's salary, for overall
financial performance of the Company.
21
5. Other Perquisites
The Committee views the perquisites afforded to the executives as an
element of the total compensation program and are provided to
facilitate business development and to enhance overall executive
productivity consistent with their duties and responsibilities.
How the Company Determines the Amount and/or Formula for Each Element
We consider current and prior compensation of each executive when
determining future compensation. Also, we review compensation practices of peer
companies and compensation for similar positions in the market in which we
compete for our executives.
Base
----
Base salary levels are determined by the Committee based on a variety
of factors including: competitive market compensation and special circumstances
particular to our staffing needs, the expertise and experience of the executive,
corporate and individual performance in relation to strategic goals established
each year, the recommendation of the CEO (except in the case of his own salary).
The Committee evaluates many different sources of information to
determine appropriate levels of base salaries for our CEO and Executive
management. Our philosophy is that the base salary should be competitive and
responsive to the market, but not set to be a market leader. Additionally, in
setting salaries, the Committee considers the importance of linking a
significant portion of executive compensation to long-term performance of the
company and individual performance, which is done through the bonus program.
Bonus
-----
Our compensation program provides for a performance-based annual bonus.
The objective is to compensate executives based on achievement of corporate and
individual goals that are related to building franchise value and shareholder
value. Each year, the Committee considers MIP bonus payments based on specific
criteria set in advance by the Committee. The criteria are based on targeted
objectives with two components: company performance and personal performance.
Company measures are reviewed and established each year by the Committee and
relate to performance as compared to a peer group of banking companies. Personal
performance measures are discussed and set by each executive and his/her
immediate supervisor. The Committee reviews and approves performance measures
for our Chairman and Chief Executive Officer. The bonus is intended to provide
the opportunity to reward outstanding performance.
The Bonus plan's corporate and personal measurement criteria, payout
levels and final payments are described below. We have previously used a peer
group that includes all publicly reporting banks and thrifts with assets between
$1 and $3 billion with information readily available via an SNL Datasource
database (the "Peer Group").
o Setting corporate performance measurement criteria. Our strategic
plan includes achieving the corporate performance of a high
performing bank in terms of return on
22
assets (ROA) return on equity (ROE) and earnings per share (EPS)
growth. Historically, the Committee has set corporate goals that
provide for higher bonus payment as the company achieves
performance at a higher percentile of our Peer Group. In 2006, as
consistent with the past several years, the levels were set as
follows:
o "Threshold" performance at the 40th percentile of our
Peer Group,
o "Target" performance at the 60th percentile of our Peer
Group and,
o "Maximum" performance at the 75th percentile of our
Peer Group. Achieving "Maximum" in all three
performance criteria has historically been achieved by
only 5% to 10% of our Peer Group. Management receiving
a "Maximum" bonus would, therefore, only be achieved by
a very high-performing company.
o Setting personal performance measurement criteria. At the outset
of the year, executives develop personal performance goals for
the year, which go beyond purely financial measures. These goals
include items over which the executive has direct impact and
which build long-term franchise value and shareholder value.
These goals are measurable such that "Threshold," "Target," and
"Maximum" levels of achievement are designated for each goal.
o Setting bonuses. The Committee reviews and sets bonus payout
levels for executives based on performance against company
performance goals and personal performance goals. The Committee
believes that, the more senior the executive the more impact the
executive has on company performance. As a result, company
performance measurement criteria play a larger role in
determining the amount of bonus for more senior level executives
and personal performance goals play a larger role in determining
the amount of the bonus for less senior executives. The table
below presents the relative importance of company performance
measurement criteria and personal performance measurement
criteria at relevant seniority levels for Named Executive
Officers. The Committee also believes that the portion of
variable income should increase as the level of responsibility
increases and has set the potential bonus higher as the level of
responsibility for the executive increases. The table below also
presents the bonus payout (expressed as a percent of the
executive's base salary) at "Threshold," "Target," and "Maximum"
levels of performance. Payout is interpolated for performance in
between levels.
------------------------------------------------------------------------------------------------------------
Percent Weighting of Bonus Payout Based on Achievement at Each
Based on Performance Level as a Percent of Base Salary
------------------------------------------------------------------------------------------------------------
Company Personal
Performance Performance Threshold Target Maximum
------------------------------------------------------------------------------------------------------------
CEO 100% 0% 25% 50% 120%
------------------------------------------------------------------------------------------------------------
COO 75% 25% 21% 42.5% 100%
------------------------------------------------------------------------------------------------------------
EVP 65% 35% 17.5% 35% 90%
------------------------------------------------------------------------------------------------------------
o Measuring performance. After the end of the fiscal year, the
Company's performance is calculated and compared to "Threshold,"
"Target," and "Maximum" levels to determine the company
performance component of the bonus. ROA, ROE and EPS growth are
each given equal weighting. Results against personal performance
measurement criteria are
23
presented in a self-assessment documented by executives and
reviewed by the executive's supervisor. The CEO integrates
company performance and personal performance results using the
criteria detailed in the preceding table and presents the
Committee with bonus recommendations. Under the bonus plan, the
committee also retains the discretion to increase bonus levels in
the case of superior performance by an executive, or lower the
bonus in appropriate circumstances. The Committee has exercised
that authority on a number of occasions.
From time to time, the Committee or the Board authorizes special
incentive compensation plans for executives who lead non-traditional divisions
of the Company. These additional plans reward executives who are in a more
entrepreneurial setting for creating strong growth and additional value to the
Company. The compensation earned from these plans may be more or less than the
incentive compensation paid to our Named Executive Officers.
Stock Options
-------------
We typically award stock option grants in December of each year to
coincide with a regularly scheduled meeting of the Committee and the Board of
Directors. Grants may be made during other times of the year in special
circumstances, such as the hiring of a new executive. The grant date is
established when the Committee approves the grant and all key terms have been
determined. We previously used the average of the high and low market prices on
the grant date to set the exercise price. Beginning in December 2006, the
exercise price of our stock options are set as the market closing price on the
grant date. Award levels are based on a formula that grants aggregate option
"value" (defined as strike price times number of options) at a set percentage of
the executive's base salary. Senior executives are granted options at a higher
percentage of their salary than less senior executives. Awards may be increased
or decreased based on the assessed long term career potential value of the
executive, the executive's performance and practices at peer organizations as
recommended by the CEO and approved by the Committee.
401(k)
------
Executives' participation in our 401(k) Plan is identical to that of
all our Associates except that consideration for additional compensation is
provided to executives to provide these executives with compensation due to the
limitations on their deferrals and matching contributions for salary levels in
excess of the limitations under the 401(k) plan imposed by the Internal Revenue
Code. This additional compensation has traditionally taken the form of
additional stock options.
Perquisites
-----------
Perquisites are granted to executives for specific reasons, as
identified by the Committee or is identified by the CEO and recommended to the
Committee. In the past, these prerequisites have included country club
memberships, which are provided to assist in business development and to
maintain competitiveness of overall compensation packages, and items like
personal financial consulting and travel allowances for business use of
personally-owned vehicles to increase
24
overall executive productivity. Additionally, relocated executives may be
reimbursed for relocation-related costs. We may provide a tax gross-up for some
of the perquisites offered.
Peer Group Review
The Committee regularly monitors the compensation programs of a peer
group of banks and thrifts. Approximately every three to four years, the
committee has an outside consultant review our compensation program. From time
to time, in the years between the outside consultant's review, the committee can
look at the compensation information in the proxy statements in a sampling of
the peer group companies to compare it to our executives' compensation.
The Committee most recently retained a consultant during 2004. The
consultant's study, using 2003 data, compared the compensation of eight of our
senior management officers to similar positions at high performing institutions
over a three-year period. The criteria includes a comparison to peer groups
using 53 publicly-held companies. The companies have been grouped into three
peer groups to identify market compensation practices at (1) 22 high performing
banks and thrifts of comparable size, (2) a cross section of 45 banks and
thrifts of comparable size and (3) a geographical peer group of up to 19 banks,
thrifts and related financial services companies located in Delaware, Maryland,
New Jersey and Pennsylvania. Some companies have appeared in one or more of the
peer groups.
The consultant concluded based on that study that our compensation
practices are competitive and the levels of total compensation were appropriate.
While there were minor deviations, total compensation for each of the eight
positions that were assessed was generally in middle of the range of the total
compensation paid by the peer group companies. The consultant did recommend that
the committee consider enhancing the long-term incentive component of our
executive compensation program. After careful consideration, the committee
concluded that the overall compensation program was functioning appropriately
and consequently made no changes in long-term incentive component of executive
compensation.
Tax Considerations on Our Executive Compensation
Code Section 162(m) - Section 162(m) of the Internal Revenue Code of
1986, as amended ("Code Section 162(m)") provides that compensation in excess of
$1 million paid to the Chief Executive Officer or to any of the other four most
highly compensated executive officers of a public company will not be deductible
for federal income tax purposes unless such compensation is paid in accordance
with one of the listed exceptions described in Code Section 162(m). We have
attempted to structure our compensation programs so that compensation paid will
be tax deductible. The deductibility of some types of compensation payments,
however, can depend upon the timing of an executive's vesting or exercise of
previously granted rights. Interpretations of and changes in applicable tax laws
and regulations, as well as other factors beyond our control, also can affect
deductibility of compensation.
25
Code Sections 280G and 4999 - Sections 280G and 4999 of the Internal
Revenue Code of 1986, as amended ("Code Sections 280G and 4999") limit our
ability to take a tax deduction for certain "excess parachute payments" as they
are defined in those sections and impose excise taxes on each executive that
receives "excess parachute payments" in connection with severance from our
Company due to a change in control. The Committee considers the adverse tax
liabilities imposed by Code Sections 280G and 4999, as well as other competitive
factors when it structures certain post-termination compensation payable to our
Named Executive Officers. We do not anticipate that any payments to be made
related to a change in control will result in non-deductible payments under
Section 280G of the Code, however, the Committee has the authority to approve
such payments on a case by case basis if it determines that such non-deductible
payments would be appropriate.
Personnel and Compensation Committee Report
We have reviewed and discussed with management the Compensation
Discussion and Analysis to be included in the Company's 2007 Shareholder Meeting
Schedule 14A Proxy Statement filed pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (the "Proxy"). Based on the reviews and discussions
referred to above, we recommend to the Board of Directors that the Compensation
Discussion and Analysis referred to above be included in the Company's Proxy.
Personnel and Compensation Committee
Claibourne D, Smith, PhD, Chairman Linda C. Drake
David E. Hollowell Thomas P. Preston
Dennis E. Klima R. Ted Weschler
COMPENSATION OF EXECUTIVES
In accordance with the requirements of the United States Securities and
Exchange Commission, which regulates the disclosures made by public companies
such as us, the individuals whose compensation is discussed in this section are
(1) Marvin N. Schoenhals because he served as our Principal Executive Officer
during 2006, (2) Stephen A. Fowle because he served as our Principal Financial
Officer during 2006, (3) Mark A. Turner, (4) Karl A. Johnston and (5) Deborah A.
Powell because their total compensation placed them in the group of the three
highest paid executives for 2006 other than the principal executive and
principal financial officers. As a group, we also refer to these executives as
our Named Executive Officers in this Proxy. The following is information about
the compensation of our Named Executive Officers.
The information for these executives is organized according to the type
of compensation. First, we show their overall total compensation, including
their salaries, bonuses, option awards and certain other compensation, such as
the matching contribution made to their 401(k) plan investment, country club
dues and automobile allowances. Then, we explain in more detail the particular
types of compensation these executives have received and could receive if they
are terminated as officers.
26
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation of each Named Executive
Officer for the year ended December 31, 2006.
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------------------------------------
Name and Principal Position Year Salary Bonus Option All Other Total
($) ($) Awards Compensation ($)
($) ($)
--------------------------------------------------------------------------------------------------------------
Marvin N. Schoenhals, 2006 $ 437,500 $ 236,000 $ 339,178 $ 39,044 $1,051,722
Chairman, President and Chief
Executive Officer
--------------------------------------------------------------------------------------------------------------
Stephen A. Fowle, Executive 2006 186,000 80,000 35,177 30,427 331,604
Vice President and Chief
Financial Officer
--------------------------------------------------------------------------------------------------------------
Mark A. Turner, 2006 262,000 148,000 111,597 27,420 549,017
Chief Operating Officer
--------------------------------------------------------------------------------------------------------------
Karl L. Johnston, 2006 240,583 135,000 83,499 45,155 504,237
Chief Operating Officer
--------------------------------------------------------------------------------------------------------------
Deborah A. Powell, Director 2006 165,062 63,000 37,182 31,924 297,168
of Human Resources
--------------------------------------------------------------------------------------------------------------
For 2006, Mr. Schoenhals earned a base salary of $437,000, a bonus of $236,000
and option awards worth $339,178. The bonus and option awards reflect the
Company's achievement of specific financial goals for the year as well as the
Committee's assessment of Mr. Schoenhals' contribution to the achievement of
those goals. Factors considered by the Committee in assessing Mr. Schoenhals'
contribution included the strength of his leadership in formulating and
executing our business strategy. In addition, Mr. Schoenhals' other compensation
in 2006 included personal financial planning services of $13,725, a contribution
made by the Company into his 401(k) plan of $11,000, country club memberships
and an automobile expense allowance.
For 2006, Mr. Fowle earned a base salary of $186,000, a bonus of $80,000 and
option awards worth $35,177. The bonus and option awards reflect the Company's
achievement of specific financial goals for the year as well as the Committee's
assessment of Mr. Fowle's contribution to the achievement of those goals.
Factors considered by the Committee in assessing Mr. Fowle's contribution
included the strength of his leadership in formulating and executing our
business strategy. In addition, Mr. Fowle's other compensation in 2006 included
personal financial planning services of $15,000, a contribution made by the
Company into his 401(k) plan of $11,000, and a country club membership.
For 2006, Mr. Turner earned a base salary of $262,000, a bonus of $148,000 and
option awards worth $111,597. The bonus and option awards reflect the Company's
achievement of specific financial goals for the year as well as the Committee's
assessment of Mr. Turner's contribution to the achievement of those goals.
Factors considered by the Committee in assessing Mr. Turner's contribution
included the strength of his leadership in formulating and executing our
business strategy. In addition, Mr. Turner's other compensation in 2006 included
personal financial planning services of $10,150, a contribution made by the
Company into his 401(k) plan of $11,000, a country club membership and an
automobile expense allowance.
27
For 2006, Mr. Johnston earned a base salary of $240,583, a bonus of $135,000 and
option awards worth $83,499. The bonus and option awards reflect the Company's
achievement of specific financial goals for the year as well as the Committee's
assessment of Mr. Johnston's contribution to the achievement of those goals.
Factors considered by the Committee in assessing Mr. Johnston's contribution
included the strength of his leadership in formulating and executing our
business strategy. In addition, Mr. Johnston's other compensation in 2006
included personal financial planning services of $23,359, a contribution made by
the Company into his 401(k) plan of $11,000, a country club membership and an
automobile expense allowance.
For 2006, Ms Powell earned a base salary of $165,062, a bonus of $63,000 and
option awards worth $37,182. The bonus and option awards reflect the Company's
achievement of specific financial goals for the year as well as the Committee's
assessment of Ms Powell's contribution to the achievement of those goals.
Factors considered by the Committee in assessing Ms Powell's contribution
included the strength of her leadership in formulating and executing our
business strategy. In addition, Ms Powell's other compensation in 2006 included
personal financial planning services of $12,750, a contribution made by the
Company into her 401(k) plan, a country club membership and an automobile
expense allowance.
Grants of Stock and Options
As a performance incentive, to encourage ownership of Common Stock and
to further align the interests of management and stockholders, the Committee
grants stock options to the CEO and Executive Management.
The following table shows the shares of WSFS Financial Corporation
stock options granted during 2006 to each individual.
GRANT OF PLAN-BASED AWARDS
-------------------------------------------------------------------------------------------------
All Other
Stock Awards: Exercise of
Number of Base Price of Grant Date
Securities Option Fair Value of
Grant Underlying Awards Option
Name Date Options (#) ($/Sh) Awards
-------------------------------------------------------------------------------------------------
Marvin N. Schoenhals 12/13/06 13,300 $ 65.20 $ 176,111
-------------------------------------------------------------------------------------------------
Stephen A. Fowle 02/22/06 800 62.78 11,936
12/13/06 3,800 65.20 50,318
-------------------------------------------------------------------------------------------------
Mark A. Turner 12/13/06 6,850 65.20 90,704
-------------------------------------------------------------------------------------------------
Karl L. Johnston - - - -
-------------------------------------------------------------------------------------------------
Deborah A. Powell 12/13/06 3,300 65.20 43,697
-------------------------------------------------------------------------------------------------
Under our 2005 Incentive Plan, we issued incentive and non-qualified
option grants to the CEO and executive officers in 2006. The options have an
exercise price equal to the closing stock price of WSFS common stock at the
grant date. The grants vest equally over four years and expire on the fifth
anniversary of the grant date. The Black-Scholes option-pricing model was used
to determine the grant-date fair-value of these options.
The number of shares granted to executives under the plan is based on a
calculation related to the executive's base salary and may be adjusted by the
Committee. In addition, the CEO and executives received non-qualified option
grants to compensate them for the limitations imposed
28
by Internal Revenue Service Code on highly compensated executives with regard to
qualified compensation plans, specifically the company's 401(k) plan.
No options were re-priced, nor were any modifications made to any
outstanding option during 2006.
Under the terms of our 2006 Incentive Plan, Ms Powell forfeited the
options granted to her in 2006 due to her resignation effective April 3, 2007.
Outstanding Equity Awards Value at Fiscal Year-End Table
The following table shows the number and exercise price of all
unexercised options held by Named Executive Officers as of December 31, 2006.
The awards are listed in order of grant date. The shorter option expiration
dates of more recent grants are due to a change from ten years to five years. No
stock awards have been granted to Named Executive Officers, therefore none are
shown in the table.
29
Outstanding Equity Awards at Fiscal Year-End
------------------------------------------------------------------------------------------------------------
Option Awards
------------------------------------------------------------------------------------------------------------
Number Number of Equity Incentive
of Securities Plan Awards:
Securities Underlying Number of
Underlying Unexercised Securities
Unexercised Options Underlying Option
Options Unexercised Exercise Option
(#) (#) Unearned Options Price Expiration
Name Exercisable Unexercisable (#) ($) Date
------------------------------------------------------------------------------------------------------------
Marvin N. Schoenhals (1) 20,400 - 20,400 $14.88 02/24/10
26,040 - 26,040 10.81 11/16/10
9,200 - 9,200 14.88 11/16/10
24,980 - 24,980 17.20 12/19/11
13,440 3,360 16,800 33.40 12/19/12
7,590 5,060 12,650 43.70 12/18/13
3,800 5,700 9,500 58.75 12/16/14
3,275 9,825 13,100 63.67 12/15/10
- 13,300 13,300 65.20 12/13/11
------------------------------------------------------------------------------------------------------------
Stephen A. Fowle (2) 600 2,400 3,000 60.00 01/03/15
750 2,250 3,000 63.67 12/15/10
- 800 800 62.78 02/22/11
- 3,800 3,800 65.20 12/13/11
------------------------------------------------------------------------------------------------------------
Mark A. Turner (3) 4,280 - 4,280 14.88 05/19/09
9,413 - 9,413 14.88 11/18/09
11,087 - 11,087 11.31 01/26/10
14,300 - 14,300 10.81 11/16/10
1,700 - 1,700 14.88 11/16/10
21,000 - 21,000 17.20 12/19/11
8,000 2,000 10,000 17.35 02/28/12
10,320 2,580 12,900 33.40 12/19/12
4,620 3,080 7,700 43.70 12/18/13
2,380 3,570 5,950 58.75 12/16/14
2,175 6,525 8,700 63.67 12/15/10
- 6,850 6,850 65.20 12/13/11
------------------------------------------------------------------------------------------------------------
Karl L. Johnston (4) - 2,000 2,000 17.35 02/28/12
- 2,020 2,020 33.40 12/19/12
1,070 2,140 3,210 43.70 12/18/13
2,300 3,450 5,750 58.75 12/16/14
1,412 4,238 5,650 63.67 12/15/10
------------------------------------------------------------------------------------------------------------
Deborah A. Powell (5)(6) 1,540 - 1,540 17.20 12/19/11
860 860 1,720 33.40 12/19/12
350 700 1,050 43.70 12/18/13
800 1,200 2,000 58.75 12/16/14
675 2,025 2,700 63.67 12/15/10
- 3,300 3,300 65.20 12/13/11
------------------------------------------------------------------------------------------------------------
30
(1) For Mr. Schoenhals, of the 3,360 unvested options expiring on 12/19/12, all
3,360 vest on 12/19/07; of the 5,060 unvested options expiring on 12/18/13,
2,530 vest on 12/18/07 and 2,530 vest on 12/18/08; of the 5,700 unvested
options expiring on 12/16/14, 1,900 vest on 12/16/07, 1,900 vest on
12/16/08 and 1,900 vest on 12/16/09; of the 9,825 unvested options expiring
on 12/15/10, 3,275 vest on 12/15/07, 3,275 vest on 12/15/08 and 3,275 vest
on 12/15/09; of the 13,300 unvested options expiring on 12/13/11, 3,325
vest on 12/13/07, 3,325 vest on 12/13/08, 3,325 vest on 12/13/09, 3,325
vest on 12/13/10.
(2) For Mr. Fowle, of the 2,400 unvested options expiring on 1/3/15, 600 vest
on 1/3/07, 600 vest on 1/3/08, 600 vest on 1/3/09 and 600 vest on 1/3/10;
of the 2,250 unvested options expiring on 12/15/10, 750 vest on 12/15/07,
750 vest on 12/15/08 and 750 vest on 12/15/09; of the 800 unvested options
expiring on 2/22/11, 200 vest on 2/22/07, 200 vest on 2/22/08, 200 vest on
2/22/09 and 200 vest on 2/22/10; of the 3,800 unvested options expiring on
12/13/11, 950 vest on 12/13/07, 950 vest on 12/13/08, 950 vest on 12/13/09
and 950 vest on 12/13/10.
(3) For Mr. Turner, of the 2,000 unvested options expiring on 2/28/12, all
2,000 vest on 2/28/07; of the 2,580 unvested options expiring on 12/19/12,
all 2,580 vest on 12/19/07; of the 3,080 unvested options expiring on
12/18/13, 1,540 vest on 12/18/07 and 1,540 vest on 12/18/08; of the 3,570
unvested options expiring on 12/16/14, 1,190 vest on 12/16/07, 1,190 vest
on 12/16/08 and 1,190 vest on 12/16/09; of the 6,525 unvested options
expiring on 12/15/10, 2,175 vest on 12/15/07, 2,175 vest on 12/15/08 and
2,175 vest on 12/15/09; of the 6,850 unvested options expiring on 12/13/11,
1,712 vest on 12/13/07, 1,713 vest on 12/13/08, 1,712 vest on 12/13/09,
1,713 vest on 12/13/10.
(4) For Mr. Johnston, of the 2,000 unvested options expiring on 2/28/12, all
2,000 vest on 2/28/07; of the 2,020 unvested options expiring on 12/19/12,
all 2,020 vest on 12/19/07; of the 2,140 unvested options expiring on
12/18/13, 1,070 vest on 12/18/07 and 1,070 vest on 12/1/08; of the 3,450
unvested options expiring on 12/16/14, 1,150 vest on 12/16/07, 1,150 vest
on 12/16/08 and 1,150 vest on 12/16/09; of the 4,238 unvested options
expiring on 12/15/10, 1,413 vest on 12/15/07, 1,412 vest on 12/15/08 and
1,413 vest on 12/15/09.
(5) For Ms Powell, of the 860 unvested options expiring on 12/19/12, all 860
vest on 12/19/07; of the 700 unvested options expiring on 12/18/13, 350
vest on 12/18/07 and 350 vest on 12/18/08; of the 1,200 unvested options
expiring on 12/16/14, 400 vest on 12/16/07, 400 vest on 12/16/08 and 400
vest on 12/16/09; of the 2,025 unvested options expiring on 12/15/10, 675
vest on 12/15/07, 675 vest on 12/15/08 and 675 vest on 12/15/09; of the
3,300 unvested options expiring on 12/13/11, 825 vest on 12/13/07, 825 vest
on 12/13/08, 825 vest on 12/13/09 and 825 vest on 12/13/10.
(6) Ms Powell resigned effective April 3, 2007. In accordance with the
provisions of our option plans, all unvested options expire on that date.
31
Exercises of Options and Vesting of Shares During 2006
The following table shows the number of options exercised by the officers
during the fiscal year ended December 31, 2006. Since no officer received stock
awards, no vesting of stock awards is shown.
Option Exercises and Stock Vested
---------------------------------------------------------------------
Option Awards
---------------------------------------------------------------------
Name Number of Value Realized
Shares on Exercise
Acquired ($)
on Exercise
(#)
---------------------------------------------------------------------
Marvin N. Schoenhals 78,640 $3,706,143
---------------------------------------------------------------------
Stephen A. Fowle - -
---------------------------------------------------------------------
Mark A. Turner - -
---------------------------------------------------------------------
Karl L. Johnston 16,740 678,262
---------------------------------------------------------------------
Deborah A. Powell 9,440 374,163
---------------------------------------------------------------------
Employment Agreements and Severance Policy
None of our Named Executive Officers are covered by a formal employment
agreement. However, we have a severance policy that provides for payments to
Executive Vice Presidents and to Chief Operating Officers if their employment is
terminated without cause or following a change of control of the Company.
Termination without cause - Executives covered by this policy who are terminated
without cause are provided a minimum of six months severance and one year of
professional level outplacement. If the executive does not find new employment
within six months after termination, severance pay would continue for another
six months, or until the executive found employment, whichever occurred first.
If the executive found another job at a lower rate of pay than previously
received at the Company, then we would make up the difference until the second
six-month period ends. Health benefits would continue at the general employee
rate through the severance period.
32
Change in control - Executives covered by this policy who are terminated without
cause within one year following a change in control or who are offered a
position with the new entity that is not within 35 miles of their current
work-site at their current WSFS salary and bonus opportunity, would receive 24
months base salary severance reduced by the value arising from the acceleration
of stock option vesting triggered by the change in control as permitted under
our stock incentive plans. The deduction for the value of the accelerated
vesting would be limited to no more than 12 months of the 24-month payment.
Twelve months of executive level outplacement would be offered and health
benefits would continue at the general Associate rate through the 24-month
period.
If an executive decides to leave the Company after a change in control
after being offered the same salary and bonus opportunity and the position is
within 35 miles of their work location, then the value of the severance benefit
would equal at least 12 months base pay. The severance benefit calculation would
include the value of accelerated vesting of stock options. If the value of the
accelerated vesting of stock options were less than 12 months of base pay, then
severance pay would be added to the value of the accelerated options so that the
total benefit would equal 12 months of base pay. Six months of professional
level outplacement would be offered and health benefits would continue at the
general Associate rate through a 12-month period. It is not anticipated that any
severance payments resulting from a change in control will cause such payments
to be non-deductible as an "excess parachute payment" as defined by Internal
Revenue Code Sections 280G and 4999. The Committee does retain the authority to
approve non-deductible severance payments associated with a change in control on
a case-by-case basis.
Mr. Schoenhals is not included in the severance policy and does not
have a severance agreement with the Company.
Mr. Johnston ceased full-time employment as a Chief Operating Officer
on January 2, 2007 and is no longer eligible for severance benefits under this
policy.
Ms Powell is no longer eligible for severance benefits due to her
resignation effective April 3, 2007.
33
Potential Payments Upon Termination or Change in Control
The following table shows the payments that the officers could potentially
receive upon termination of their employment or a change of control of the
Company at December 31, 2006.
-----------------------------------------------------------------------------------------------------------
Before Change in After Change in
Control Control
Termination Termination
Without Cause or Without Cause or
Termination for Termination for
Name Benefit Good Reason Good Reason Death Disability
-----------------------------------------------------------------------------------------------------------
Marvin N. Severance pay $ - $ - $100,000 $278,423
Schoenhals Outplacement
services - - - -
Option vesting 331,869 331,869 331,869
Health benefits - - - -
-------- -------- -------- --------
Total Value - 331,869 431,869 610,292
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Stephen A. Severance pay 187,200 340,539 50,000 38,400
Fowle Outplacement
services 10,000 10,000 - -
Option vesting 33,861 33,861 33,861
Health benefits 7,730 15,462 - -
-------- -------- -------- --------
Total Value 204,930 399,862 83,861 72,261
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Mark A. Turner Severance pay 266,000 266,000 100,000 105,846
Outplacement
services 10,000 10,000 - -
Option vesting - 319,540 319,540 319,540
Health benefits - - - -
-------- -------- -------- --------
Total Value 276,000 595,540 419,540 425,386
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Karl L. Severance pay 242,500 242,500 100,000 103,279
Johnston Outplacement
services 10,000 10,000 - -
Option vesting - 258,640 258,640 258,640
Health benefits - - - -
-------- -------- -------- --------
Total Value 252,500 511,140 358,640 361,919
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Deborah A. Severance pay 166,062 264,901 100,000 55,935
Powell Outplacement
services 10,000 10,000 - -
Option vesting - 67,223 67,223 67,223
Health benefits 4,233 8,466 - -
-------- -------- -------- --------
Total Value 180,295 350,590 167,223 123,158
-----------------------------------------------------------------------------------------------------------
o The amount for outplacement services are based on management's estimate
based on discussions with outplacement providers.
o Option vesting is based on an assumed value of $66.93 per WSFS share
reflecting the closing price on December 31, 2006.
34
o The amount for health benefits represents the premium paid by the Company
reduced by amount paid by the Associate.
o Disability benefits are based on years of service. We offer two weeks of
disability benefits for each year of service.
o Severance payments following a change in control are subject to reduction
if such payments would exceed the deductibility limits under Section 280G
of the Internal Revenue Code, unless the Committee were to specifically
authorize such non-deductible payments at that time on a case-by-case
basis.
Retirement Plans
We do not maintain a tax-qualified non-contributory retirement plan
(pension plan). However, we do provide continuation of medical benefits to
Associates who retire from the company, should they elect to participate in the
benefit. We provide supplemental contributions toward retiree continuing medical
coverage costs. For 2006, our contribution towards this supplement was capped at
$2,219 per retiree, but may have been less based on length of service at time of
retirement of each retiree irrespective of annual increases to the cost of the
medical benefit premium. We limit our increases to no more than 4% annually.
35
6. Committees of the Board of Directors
------------------------------------
There are four main committees of the Board of Directors: the Executive
Committee, the Corporate Governance and Nominating Committee, the Audit
Committee and the Personnel and Compensation Committee.
Executive Committee
-------------------
Currently, Marvin N. Schoenhals acts as Chairman of the Executive
Committee and the other members of the committee are Charles G. Cheleden, David
E. Hollowell, Dennis E. Klima and Calvert A. Morgan, Jr. The committee meets
monthly, or more frequently if required, and met 25 times during 2006. This
committee exercises the powers of the Board of Directors between meetings of the
full Board and its primary activity has been to review those loan applications
that need Board approval.
Another important part of the Executive Committee's role is to review
and approve transactions with insiders. Under the Bank's written policy, the
Executive Committee reviews and approves all insider loans or lending
relationships. Any loan granted to an insider in excess of $500,000 requires
pre-approval by the Board of Directors, with the interested party (if a
director) abstaining from participating directly or indirectly in the voting.
All loans granted to insiders, regardless of the amount, are reported to the
Board of Directors.
Corporate Governance and Nominating Committee
---------------------------------------------
Currently, Charles G. Cheleden acts as Chairman of the Corporate
Governance and Nominating Committee and the other members of the committee are
John F. Downey, Linda C. Drake, Dennis E. Klima, Thomas P. Preston and
Claibourne D. Smith. The committee met four times during 2006. A copy of the
Corporate Governance and Nominating Committee Charter can be found on the
investor relations page of our website www.wsfsbank.com (select "Investor
Relations" on the menu found under "About WSFS" and click on "Governance
Documents").
The Corporate Governance and Nominating Committee does the following:
o Makes recommendations to the full Board of Directors regarding
corporate governance guidelines and policies.
o Assists the Board of Directors in finding individuals who are
qualified to serve as directors and provides its recommendations
to the full Board of Directors when the Board selects its
nominees for each annual meeting.
o Leads the Board in an annual review of the Board's performance.
o Advises the Board on the assignment of the directors to serve on
the various committees of the Board.
36
o Reviews and approves any transactions that directors or employees
(including their family members and members of their households)
have with WSFS Financial Corporation and its subsidiaries,
including WSFS Bank. - see Review and Approval of Transactions
with Insiders below.
We believe that it is important to have a strong, independent Board of
Directors that is accountable to the stockholders. The Company's by-laws empower
the Committee with the responsibility for identifying qualified individuals as
candidates for membership in the Board of Directors.
The Committee solicits recommendations from the officers and directors
as well as considers and evaluates any candidates recommended by the
shareholders. There is no difference in the manner in which the Committee
evaluates persons recommended by directors or officers versus those recommended
by stockholders in selecting Board nominees. It has not been the Company's
practice to date to pay fees to any third party to identify, evaluate or assist
in identifying or evaluating potential nominees for the Board of Directors.
The Board desires that its membership be geographically diverse,
therefore, potential directors should enhance the Board's statewide and regional
representation. The Board also desires that its membership reflect gender and
racial diversity with a broad range of experience, knowledge and judgment in a
variety of business and professional sectors. As a commitment to this
diversification, the Board believes potential directors should be knowledgeable
about the business activities and market areas in which we and our subsidiaries
engage. A candidate's breadth of knowledge and experience should enable that
person to make a meaningful contribution to the governance of a complex,
multi-billion dollar financial institution.
To be considered in the Committee's selection of Board nominees,
recommendations from stockholders must be received by the Corporation in writing
not less than 120 days prior to the anniversary date of the mailing date of the
proxy statement for the previous year's annual meeting. Recommendations should
identify the stockholder making the recommendation and for each person the
stockholder proposes to recommend as a nominee to the Board (1) the name, age,
business address of such person; (2) the principal occupation or employment of
such person; (3) the Class and number of shares of our Voting Stock (as defined
in our Bylaws) which are beneficially owned by such stockholder on the date of
such notice; and (4) any other information required to be included in such
notice as described in our Bylaws or disclosed in solicitations of proxies with
respect to nominees for election of directors described in the Securities
Exchange Act of 1934.
Audit Committee
---------------
Currently, John F. Downey acts as Chairman of the Audit Committee and
the other members of the committee are Joseph R. Julian, Scott E. Reed and
Claibourne D. Smith. Mr. Reed has the qualifications to serve as the committee's
financial expert. Each member of the Audit Committee is "independent" as defined
in the listing standards of the Nasdaq Stock Market. The
37
committee met nine times during 2006. A copy of the Audit Committee Charter is
included as Appendix A of this document and can be found on the investor
relations page of our website www.wsfsbank.com (select "Investor Relations" on
the menu found under "About WSFS" and click on "Governance Documents").
The Audit Committee does the following:
o Oversees the audit program and reviews WSFS Financial
Corporation's consolidated financial statements, including major
issues regarding accounting and auditing principles and practices
as well as the adequacy of internal controls that could
significantly affect the Corporation's financial statements.
o Reviews the examination reports from federal regulatory agencies
as well as reports from the internal auditors and from the
independent registered public accounting firm.
o Meets quarterly with the internal Loan Review Department as well
as the head of the Audit Department and representatives of the
independent registered public accountants, with and without
representatives of management present, to review accounting and
auditing matters, and to review financial statements prior to
their public release.
o Meets annually to review WSFS Financial Corporation's risk
analysis and associated audit plan.
o Approves the selection of the independent registered public
accounting firm and recommends their appointment to the full
Board of Directors.
It is the Audit Committee's policy to approve all audit and non-audit
services prior to the engagement of the independent registered public accounting
firm to perform any service. Under certain circumstances, management is
authorized to spend up to 5% of the total audit fees as approved by the Audit
Committee in the Engagement Letter without obtaining any additional approval.
These additional fees are reported to the Audit Committee on a timely basis.
Additional audit fees ranging from 5% to 10% of the total audit fees as approved
by the Audit Committee in the Engagement Letter require the approval of the
Chairman of the Audit Committee prior to the engagement. These additional fees
are reported to the other Committee members on a timely basis. Additional audit
fees that exceed 10% of the total audit fees as approved by the Audit Committee
in the Engagement Letter require the approval of the full Audit Committee prior
to the engagement.
In connection with the audit of the 2006 financial statements, the
Company entered into an engagement letter with KPMG LLP that sets the terms by
which KPMG performed audit services for us. That agreement is subject to
alternative dispute resolution procedures and an exclusion of punitive damages.
38
All of the services listed below for 2006 were approved by the Audit
Committee prior to the service being rendered. The Audit Committee has
determined that the non-audit services performed during 2006 were compatible
with maintaining the independent registered public accounting firm's
independence.
Audit Fees. The aggregate fees earned by KPMG LLP for professional
services rendered for the audit of WSFS Financial Corporation's consolidated
financial statements and for the review of the consolidated financial statements
included in WSFS Financial Corporation's quarterly reports on Form 10-Q for the
fiscal years ended December 31, 2006 and 2005 were $619,566 and $700,000,
respectively.
Audit Related Fees. The aggregate fees earned by KPMG LLP for audit,
attestation and related services primarily related to the audit of the financial
statements, the review of the quarterly financial statements and due diligence
activities on proposed transactions for the years ended December 31, 2006 and
2005 were $48,750 and $17,000, respectively.
Tax Fees. The aggregate fees earned by KPMG LLP for professional
services rendered for tax compliance, tax advice or tax planning for the years
ended December 31, 2006 and 2005 were $70,500 and $63,000, respectively.
All Other Fees. The aggregate fees earned by KPMG LLP for professional
services rendered for services or products other than those listed under the
captions "Audit Fees," "Audit Related Fees," and "Tax Fees" for both the years
ended December 31, 2006 and 2005, were $0.
The Audit Committee has prepared the following report for inclusion in
this proxy statement:
As part of its ongoing activities, the Audit Committee has:
o Reviewed and discussed with management the Company's audited
consolidated financial statements for the fiscal year ended
December 31, 2006;
o Discussed with the independent registered public accounting firm,
the matters required to be discussed by Statement on Auditing
Standards No. 61, Communications with Audit Committees, as
amended; and
o Received the written disclosures and the letter from the
independent registered public accounting firm required by
Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, and has discussed with the
independent registered public accounting firm their independence.
Based on the review and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited consolidated
financial statements be included in WSFS Financial Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 2006.
The Audit Committee, comprised of John F. Downey, Joseph R. Julian,
Scott E. Reed and Claibourne D. Smith, has provided this report.
39
Personnel and Compensation Committee
------------------------------------
Currently, Claibourne D. Smith acts as Chairman of the Personnel and
Compensation Committee and the other members of the committee are Linda C.
Drake, David E. Hollowell, Thomas P. Preston, Dennis E. Klima and R. Ted
Weschler. The committee met five times during 2006. A copy of the Personnel and
Compensation Committee Charter can be found on the investor relations page of
our website www.wsfsbank.com (select "Investor Relations" on the menu found
under "About WSFS" and click on "Governance Documents").
The Personnel and Compensation Committee does the following:
o Oversees the executive compensation programs and recommends to
the full Board of Directors for its approval the compensation and
benefits of the senior management officers.
o Approves guidelines for the salary and benefits of other officers
and employees.
o Oversees the administration of option plans and incentive plans
and makes recommendations to the Board of Directors for awards
under such plans.
Trust Committee
---------------
The Trust Committee is comprised of members of both the WSFS Bank Board
and of management. It provides oversight to Wilmington Advisors, the trust
division of the Bank. Currently, Calvert A. Morgan, Jr. acts as Chairman and the
other members of the committee are Linda C. Drake, Scott E. Reed, Marvin N.
Schoenhals, Mark A. Turner and Joseph D. Blair. The committee did not meet in
2006 as it was formed in January 2007. A copy of the Trust Committee Charter can
be found on the investor relations page of our website www.wsfsbank.com (select
"Investor Relations" on the menu found under "About WSFS" and click on
"Governance Documents").
The Trust Committee does the following:
o Oversees Wilmington Advisors in providing trust administration
and investment management services;
o Adopts appropriate policies and procedures to be observed in
offering such services;
o Enforces sound risk management practices calculated to minimize
risk of loss to the Bank and its customers; and
o Reports to the Board on the activity of Wilmington Advisors in
the conduct of its business.
40
Stock Ownership and Retention Guidelines
Our By-Laws require that each director of our Company be a stockholder
and own a minimum amount of our common stock as determined from time to time by
the Board. The Board has established a guideline that the minimum amount of
stock owned, plus retention of stock grants should be approximately 2,200 shares
after three years of directorship.
This guideline is designed to encourage our directors to increase and
maintain their equity stake in our company and thereby to more closely link
their interests with those of our shareholders.
7. Compensation of the Board of Directors
--------------------------------------
Except for Mr. Weschler, our non- Associate directors received the
following base compensation for 2006:
o An annual retainer of $15,500, paid in cash,
o 600 shares of WSFS Financial Corporation common stock.
o 1,223 options to purchase shares of WSFS Financial Corporation
common stock under our 2005 Incentive Plan.
Mr. Weschler received an annual cash retainer of $15,500 and 600 shares
of WSFS Financial Corporation common stock. Due to his retirement from the Board
in April 2007, he received no stock options.
During the year ended December 31, 2006, the Board of Directors held 7
meetings. None of the directors attended less than 75% of the total of: (a)
meetings of the Board of Directors and (b) meetings of the committees on which
they served during the year. We pay a fee for committee service, and during 2006
each director received $650 for each committee meeting he or she attended.
Directors who served on the Audit Committee each received an additional annual
retainer of $10,000 during 2006.
Directors who chaired board committees during 2006 received an
additional annual retainer. The Audit Committee chair received $5,000, the
Corporate Governance and Nominating Committee chair received $3,000, and the
Personnel and Compensation Committee chair received $3,000.
41
Director Compensation Table
---------------------------
The compensation paid to directors during 2006 is summarized in the
following table. The assumptions used in valuing the stock and option awards are
detailed in Note 14 the to consolidated financial statements contained in our
2006 Annual Report. Mr. Schoenhals is not shown in this table because he is
compensated as an officer and does not receive any director compensation.
Fees Non-Qualified
Earned Deferred All
or Paid Stock Option Compensation Other
Directors: in Cash Awards Awards (1) Earnings Compensation Total
---------- ------- ------ ---------- -------- ------------ -----
Charles G. Cheleden $ 56,650 $ 37,956 $17,190 - - $ 111,796
John F. Downey 39,600 37,956 17,190 - - 94,746
Linda C. Drake 20,700 37,956 17,190 - - 75,846
David E. Hollowell 35,850 37,956 18,934 - - 92,740
Joseph R. Julian 32,000 37,956 17,190 $12,340 - 99,486
Dennis E. Klima 32,200 37,956 13,522 - - 83,678
Calvert A. Morgan, Jr. (2) 32,400 37,956 29,005 - $ 139,500 238,861
Thomas P. Preston 19,400 37,956 18,111 - - 75,467
Scott E. Reed 24,400 37,956 9,958 - - 72,314
Claibourne D. Smith 36,100 37,956 17,190 - - 91,246
Eugene W. Weaver (3) 16,650 37,956 24,229 - 5,000 83,835
R. Ted Weschler 25,250 37,956 16,978 - - 80,184
(1) Except for Mr. Weaver and Mr. Weschler, the grant date fair value of each
director's 2006 equity award was $16,194. Mr. Weaver and Mr. Weschler did
not receive an equity award in 2006. Amounts shown in this column represent
compensation expense
(2) Mr. Morgan's Other Compensation includes $100,000 for consulting services,
$35,000 for incentive bonus and $4,500 for an expense allowance.
(3) Mr. Weaver's Other Compensation was a contribution made by the Corporation
to the Eugene W. Weaver Foundation upon his retirement. Mr. Weaver retired
from the Board in April 2006.
Compensation of Mr. Cheleden as the Lead Director
The Lead Director is an outside and independent director designated by
the Board of Directors of the Company to lead the Board to fulfill its duties
effectively, efficiently and independent of management. Charles G. Cheleden
currently serves as Lead Director, and during 2006, he was compensated $1,500
per month for serving in that role, in addition to his other compensation as a
director.
The responsibilities of the Lead Director include:
o Enhancing Board effectiveness by ensuring the Board has adequate
training and resources to carry out its duties.
42
o Managing the Board by:
o providing input on Board and Committee meeting agendas,
o consulting with the Chairman on effectiveness of Board
committees,
o ensuring that the Board has adequate opportunities to
discuss issues without management's presence,
o chairing Board meetings in the absence of the Chairman,
o ensuring that committee functions are carried out and
reported to the Board and
o calling meetings of the independent directors as necessary.
o Acting as a liaison between the Board of Directors, management
and major stockholders. This includes communicating to
management, as appropriate, to discuss the results of private
discussions among independent directors to resolve conflicts and
being available for consultation and direct communication with
major shareholders.
Compensation of Mr. Morgan as Special Advisor to Management
-----------------------------------------------------------
In 2004, Calvert A. Morgan, Jr. was elected a director of WSFS
Financial Corporation and began serving in a consulting capacity as a Special
Advisor to Management. In this role, Mr. Morgan performs such duties as
requested by the Board of Directors and the Chairman to assist in improving
corporate performance. He is compensated for his services as Special Advisor in
addition to his other compensation as a director. During 2006, Mr. Morgan
received an annual base consulting fee of $100,000, with the opportunity to earn
a supplemental payment ranging from 0% to 100% of the base fee. The precise
amount of the supplemental payment is determined at the discretion of the
Chairman, based on the overall results of WSFS for the year, loan and deposit
growth, and the Chairman's subjective assessment of Mr. Morgan's overall
contribution to those results. Mr. Morgan earned a supplemental payment of
$30,000 for 2006, which was paid after the end of the fiscal year. He received a
supplemental payment of $35,000 for 2005 which was paid during 2006. As part of
the terms of his consulting engagement with us, Mr. Morgan is also entitled to a
separation payment of up to $110,000, based on the length of his engagement.
43
8. Other Information
-----------------
Large Stockholders
------------------
Stockholders who own 5% or more of the outstanding common stock of a publicly
traded company are required to report that information to the Securities and
Exchange Commission (the SEC). The following table lists the stockholders who
have reported to the SEC that they own 5% or more of WSFS Financial
Corporation's outstanding common stock. The number of shares is the number based
most recently reported to the SEC by the stockholder. The percentage is based on
the number of shares of WSFS Financial Corporation common stock outstanding as
of March 7, 2007, the record date set for the 2007 Annual Meeting of
Stockholders.
Percentage of WSFS Financial
Number of Corporation common stock
Name and address of owner Shares (1) outstanding
------------------------- ---------- -----------
Private Capital Management (2) 640,617 shares 10.16%
8889 Pelican Bay Boulevard
Naples, FL 34108
Barclays Global Investors, NA (3) 392,429 shares 6.22%
45 Fremont Street
San Francisco, CA 94105
Wellington Management Company, LLP (4) 347,600 shares 5.51%
75 State Street
Boston, MA 02109
JPMorgan Chase & Co. (5) 343,590 shares 5.45%
270 Park Avenue
New York, NY 10017
(1) In accordance with Rule 13d-3 under the Exchange Act, for the purposes of
this table, a person is deemed to be the beneficial owner of any shares of
Common Stock if he or she has or shares voting and/or investment power with
respect to such Common Stock or has a right to acquire beneficial ownership
at any time within 60 days from the Record Date. As used herein, "voting
power" is the power to vote or direct the voting of shares and "investment
power" is the power to dispose or direct the disposition of shares. Except
as otherwise noted, ownership is direct, and the named individuals and
groups exercise sole voting and investment power over the shares of the
Common Stock.
(2) According to the Statement on Schedule 13G/A of Private Capital Management
filed on February 14, 2007, shares are held by its investment advisory
clients as to which it shares voting and investment power.
(3) According to the Statement on Form 13F of Barclays Global Investors, NA
filed in December 2006, the shares reported are held by Barclays Global
Investors, NA and its affiliates.
(4) According to the Statement on Schedule 13G/A of Wellington Management
Company, LLP filed on February 14, 2007, shares are held by its investment
advisory clients as to which it shares voting and/or investment power.
(5) According to the Statement on Schedule 13G of JPMorgan Chase & Co. filed on
February 9, 2007 for which they have sole voting power.
44
APPENDIX A
WSFS FINANCIAL CORPORATION
AUDIT COMMITTEE CHARTER
WSFS Financial Corporation has created a Committee of the Board of Directors to
be known as the AUDIT COMMITTEE with its goals and objectives, composition, term
of office, and duties and responsibilities as follows:
GOALS AND OBJECTIVES
The primary goal of the Committee will be to assist the Board of Directors in
fulfilling its fiduciary responsibilities relating to corporate accounting and
reporting practices of the holding company, WSFS, and all related subsidiaries.
In addition, the Committee will:
o Oversee and appraise the quality of the audit effort of the Company's
Internal Audit function and that of its independent auditors;
o Maintain, by scheduling regular meetings, open lines of communication among
the Board, internal auditors, and the independent accountants to exchange
views and information as well as confirm their respective authority and
responsibilities; and
o Determine the adequacy of the Company's (including its Trust Division)
administrative, operating, and internal accounting controls and evaluate
adherence.
COMPOSITION
The Board of Directors shall annually elect the membership of the Audit
Committee, upon the recommendation of the Lead Director, which will be comprised
of a minimum of three outside directors, each of whom will be independent of
senior management and operating executives of the holding company, WSFS, and all
related subsidiaries, and free from any relationships which might in the opinion
of the Board of Directors be construed as a conflict of interest. One of the
members shall be elected chairperson of the Committee by the members of the
Committee.
o Each member of the Audit Committee must be "Independent". An Audit
Committee member is not allowed to accept any consulting, advisory or other
compensatory fee, either directly or indirectly, from the company or an
affiliate of the company, other than in the member's capacity generally as
a director, including as a member of any Board committee.
o The Audit Committee must have at least one member, who is considered a
"financial expert" as defined by the SEC or appropriate regulatory agency.
The company will make the required public disclosures regarding the
"financial expert".
TERM OF MEMBERSHIP
Each member of the Committee shall serve a term of one continuous year after
election. The chairperson shall be elected annually by the members of the
Committee, and no chairperson shall serve more than three consecutive years as
chairperson of the Audit Committee. Exceptions to the above noted terms will
require a formal approval process by the Board of Directors.
A-1
MEETINGS
The Committee will hold at least eight regular meetings each year. Four meetings
will be held to review the Corporation's earnings and financial statements prior
to their release to the public. Four additional meetings will be held to review
the reports of the Internal Audit and Loan Review Departments, as well as other
auditing or loan review matters.
A meeting quorum requires that three Committee members be present at the
meeting. Items requiring the approval of the Committee will require a majority
vote by the Committee.
DUTIES AND RESPONSIBILITIES
The Committee will hold its regular meetings each year, and such additional
meetings as the Chairperson of the Committee shall require in order to meet the
following duties:
o Review the annual audited financial statements with management, including
major issues regarding accounting and auditing principles and practices as
well as the adequacy of internal controls that could significantly affect
the Company's financial statements;
o Review an analysis prepared by management and the independent auditor of
significant financial reporting issues and judgments made in connection
with the preparation of the Company's financial statements;
o Meet periodically with management to review the Company's major financial
risk exposures and the steps management has taken to monitor and control
such exposures;
o Review with management the Company's quarterly financial statements prior
to the release of quarterly earnings;
o Review and reassess the adequacy of this Charter annually and submit it to
the Board for approval;
o Responsible for the appointment, compensation, retention and oversight of
the work of the independent public accounting firm engaged for the purpose
of preparing or issuing an audit report or related work or performing other
similar services for the company, and each such independent public
accounting firm must report directly to the Audit Committee. Recommend to
the full Board the appointment of the independent accountant for the coming
year;
o Pre-approve all audit and non-audit services being provided by the
independent accountants in accordance with the Audit Committee Pre-Approval
Policy. The company will make the required public disclosures regarding the
pre-approval policies and procedures.
o Monitor the independence of the public accounting firm. This monitoring
should include:
o Prohibiting certain partners on the audit engagement team from
providing audit services to the company for more than five or seven
consecutive years, depending on the partner's involvement in the
audit;
o Prohibiting an accounting firm from auditing the company's financial
statements if certain members of senior management (i.e., CEO, CFO,
Controller, etc.) of the company had been members of the accounting
firm's audit engagement team within the one-year period preceding the
commencement of audit procedures; and
A-2
o Reviewing that an audit partner's receipt of compensation based on the
sale of engagements to the Company for services other than audit,
review, and attest services would impair the accountant's
independence.
o Ensure that members of the Committee have unrestricted access to the
independent accountants (without management present) to review and discuss
Corporate financial or other matters at such times and under such
circumstances as the Committee may deem necessary or appropriate;
o Approve the scope of external audit services; review adjustments
recommended by the independent public accountant and address disagreements
between the independent public accountant and management; review documents
required by this part, and meet with independent public accountants
(without management present) prior to the filing of reports upon completion
of the audit services;
o Receive confirmation from the independent accountants that an external
audit is conducted in compliance with statutory requirements;
o Review and approve the audit plan of the independent accountants;
o Review and approve the audit plan of the Internal Audit Department;
o Oversee the internal audit function, approve the selection, compensation,
and termination of internal auditors; approve the scope of internal audits
to assure regular testing of the systems and controls associated with
preparing financial reports, trust audit activities, complying with laws
and regulations, and preventing management from overriding the internal
control system or compromising the control environment.
o Evaluate the effectiveness of both the internal and external audit effort
through regular meetings with each respective group;
o Determine that no management restrictions are being placed upon either the
internal or external auditors;
o Review the adequacy of internal controls and management's handling of
identified material inadequacies and reportable conditions in the internal
controls over financial reporting, trust audit activities, and compliance
with laws and regulations;
o Evaluate the adequacy of the Company's internal accounting control system
by review of written reports from the internal and external auditors, and
monitor management's response and actions to correct any noted
deficiencies;
o Review quarterly written reports issued by the Loan Review & Risk
Management Department regarding such items as Risk Assessment, Credit
Quality and Credit Administration;
o Establish procedures for the receipt, retention and treatment of complaints
regarding accounting, internal control, or auditing matters, including
procedures for the confidential, anonymous submission by Associates of the
company of concerns regarding questionable accounting, internal control or
auditing matters;
A-3
o Ensure compliance with all applicable statutes and regulations setting
forth duties, responsibilities and obligations for Audit Committees
contained in the FDIC Improvement ACT (FDICIA) of 1991 and the Securities
and Exchange Commission (SEC) - Blue Ribbon Committee Recommendations on
Improving the Effectiveness of Audit Committees;
o Ensure that there are no members of the Committee who are not independent
as required by applicable regulation;
o Ensure that members of the Committee have the expertise required by
applicable regulation; that the Committee has the authority to engage
independent counsel and other advisors, as it determines necessary to carry
out its duties. The company must provide appropriate funding to pay the
independent counsel or advisors, as well as the independent accountants;
o Review all regulatory reports submitted to the Company and monitor
management's response to them;
o Require periodic reports from management, the independent accountants, and
internal auditors on any significant proposed regulatory, accounting, or
reporting issue to assess the potential impact upon the Company's financial
reporting process;
o Receive periodic reports from the independent auditor regarding the
auditor's independence, discuss such reports with the auditor, consider
whether the provision of non-audit services is compatible with maintaining
the auditor's independence and, if so determined by the Audit Committee,
recommend that the Board take appropriate action to satisfy itself of the
independence of the auditor;
o Discuss with the independent auditor the matters required to be discussed
by Statement on Auditing Standards No. 61 relating to the conduct of the
audit;
o Review with the independent auditor any management letter provided by the
auditor and the Company's response to that letter;
o Obtain from the independent auditor assurance that Section 10A of the
Securities Exchange Act of 1934 (i.e., discovery and reporting of illegal
acts) has not been implicated;
o Review and approve all significant accounting changes;
o Review and approve the report required by the rules of the Securities and
Exchange Commission to be included in the Company's annual proxy statement;
o Identify and direct any special projects or investigations deemed
necessary;
o Offer to meet with the Chief Financial Officer, the Senior Internal
Auditing Executive and the independent auditor in separate executive
sessions at any time, upon their request;
o Execute any duties or responsibilities which have been delegated to the
Committee by the full Board of Directors (i.e. review of the IRR Compliance
Reports and Suspicious Activity Reports, etc.).
o Shall maintain minutes and other relevant records of their meetings and
activities. Such minutes shall be made available for review by the FDIC,
SEC and the appropriate federal banking agency.
o A report regarding the agenda items for all Audit Committee meetings will
be made to the Board of Directors of the Corporation.
A-4
CERTIFICATIONS
o Management must report to the Audit Committee that the quarterly and annual
certifications required by Section 302 and the annual internal control
report required by Section 404 of the Sarbanes-Oxley Act have been
completed, and any material weaknesses or significant control deficiencies
have been reported to the Committee.
In carrying out their responsibilities, the Audit Committee believes its
policies and procedures should remain flexible in order that it be able to react
to changing conditions and the environment, and to assure the directors and
shareholders that the corporate accounting and reporting practices of the
Corporation are in accordance with all requirements and are of the highest
quality. While the Audit Committee has the responsibilities and powers set forth
in this Charter, it is the responsibility of management and the independent
auditor to determine that the Company's financial statements are complete and
accurate and are in accordance with Generally Accepted Accounting Principles
(GAAP).
Approved this twenty-third day of October, 2006
Last amended 10/23/06.
A-5