On January 11, 1832, a week before Wilmington became a city, the Delaware General Assembly approved a charter for the Wilmington Savings Fund Society (WSFS). A month later, in a small rented room next to Town Hall, the bank opened for business. Minimum deposit, $1. Maximum, $20. Interest, 3.6 percent—a whopping return by today’s standards.
WSFS was not the first bank in Wilmington, nor in Delaware. The Bank of Delaware, founded in 1795 as the Equitable Bank of Delaware, held that distinction. Farmers Bank, another Delaware institution, opened its first Wilmington office in 1814.
Founded to serve the city’s working class, WSFS would grow steadily, but it labored in the shadow of larger institutions: Bank of Delaware and Farmers in the 19th century; Wilmington Trust and Delaware Trust, both founded by members of the du Pont family, in the 20th century.
[caption id="attachment_9695" align="alignright" width="240" caption="WSFS corporate headquarters in downtown Wilmington"]
Now, with Wilmington Trust crumbling under the weight of disastrous loans to downstate real estate developers and about to be sold to Buffalo-based M&T Bank and with other local competitors gobbled up in acquisitions, WSFS, with assets of nearly $4 billion, stands tall as the largest Delaware-born-and-bred bank headquartered in the First State.
Identifying Delaware's Banks - A timeline of Delaware based banks (click to view graphic)
The outcome took many observers by surprise. “We always thought that Wilmington Trust would be the great survivor, and it turns out that WSFS is the one Delaware bank still standing,” said Delaware historian Carol E. Hoffecker of the University of Delaware.
Hoffecker credits WSFS management with being “more prudent” than its competitors. “WSFS, in general, has not tried to play with the big boys quite to the degree that Wilmington Trust thought it could,” she said.
“They stuck to their knitting. They didn’t try to be something they weren’t,” said Alan Levin, director of the Delaware Economic Development Office (DEDO).
For WSFS to achieve its new standing, two things had to happen: Its bigger local competitors had to be acquired by larger, out-of-state corporations, and, more significantly, it had to survive its own near-disaster.
The acquisitions, except for Wilmington Trust, came first, between 1978 and 1988, with subsequent generations of mergers extending into the 21st century.
And then WSFS nearly crashed and burned.
[caption id="attachment_9671" align="alignleft" width="180" caption="Thomas Preston - WSFS board member 1990-present"]
Tom Preston had been practicing law in Delaware for only about a year when he got a call in 1989 from a Pennsylvania bank holding company that owned a block of WSFS stock and “was very concerned that the bank was going in the wrong direction.” The company hired him to launch a proxy fight to gain a seat on the WSFS board of directors. Joining the battle was C.G. Cheleden, a Philadelphia-area attorney with significant banking experience.
By mid-1990, both men had seats on the WSFS board. J. Walton St. Clair Jr., CEO since 1983, resigned. Cheleden was named acting CEO. The magnitude of the bank’s problems quickly came to light. WSFS had lost $5.8 million in 1989. For the first nine months of 1990, the losses mushroomed to $47.9 million.
Preston blamed most of the loss on the ill-advised purchase of Fidelity Federal Savings & Loan, a Philadelphia-area S&L that was overloaded with bad loans. WSFS had also made numerous loans to condominium developers.
“Condominiums in Delaware, at least at that time, just didn’t work very well,” Preston said. Ventures into condos and other commercial projects took WSFS management, whose bread and butter had been residential mortgages, well outside its comfort zone.
WSFS was not alone. Nationwide, the savings and loan industry was in a historic crisis. According to the Federal Deposit Insurance Corporation, from 1986 to 1995 the number of federally insured S&Ls in the United States declined by nearly half, from 3,234 to 1,645, primarily due to unsound lending in an overheated real estate market that finally crashed.
The greatest symbol of WSFS’s overreaching was “the hole in the ground,” the site of a planned 21-story, $70 million corporate headquarters on the northeast corner of Rodney Square. Ground was broken in late 1989, the foundation was poured, and there it sat.
Preston is not certain how much the bank’s board knew of the troubles, or what management might have told — or not told—the board.
“The conduct of the WSFS board [in 1988 and 1989] might very well have been consistent with acceptable practices in those days,” Preston said, “but the climate for a board of directors on a publicly held company today is dramatically different.”
Cheleden took the lead in pressing for change—fast.
“I can remember the sense of shock I had, and every other board member had, when C.G. presented his analysis as to where the bank was,” Preston said. “Nobody wanted to be sitting at the board table if the bank closed down.”
To recruit a new CEO, the bank placed a help-wanted ad in the Wall Street Journal and American Banker. Cheleden summarized WSFS’s situation in what Preston called “a Harvard Business School case study” and screened applicants by seeing how they analyzed it.
[caption id="attachment_9670" align="alignright" width="120" caption="Marvin "Skip" Schoenhals - WSFS Chairman of the Board"]
Marvin N. “Skip” Schoenhals, one of about 40 who prepared a response to the case study, “won the job going away,” Preston said. Schoenhals calls Cheleden’s plan “a stroke of genius,” since it ensured that “whoever they selected had a game plan ready the day he showed up for work.”
Schoenhals arrived for work in late 1990, taking over an operation with assets of more than $1.5 billion, 23 branches, and more than 600 employees.
The previous management, Schoenhals said, “decided to grow too fast … tried to do things they did not have the expertise to execute.”
In 1991, Schoenhals’ team stripped WSFS to the bare essentials, working out problem loans and selling assets, the credit-card portfolio, the real estate subsidiary, and even their eight downstate branches.
The buyer of those branches: Wilmington Trust. “That,” Preston said, “may be the true definition of irony.”
When it hit bottom in late 1991, WSFS had 15 branches and assets of about $950 million.
By 1995, after a couple of years of laboring under federal bank watchdogs, WSFS was back on track. Even “the hole in the ground” had been sold, albeit at a loss, to a bank named MBNA, which had long cherished a prominent position on Rodney Square.
WSFS, once a candidate for sale, was taken off the market. The offers weren’t good enough, Schoenhals said. As it turned out, he said, the move was “not only the right thing to do … but a genius thing to do.”
Why? “With consolidation going on around us, we were locally managed, big enough to do most anything our customers needed, but small enough to do it with incredible flexibility. It’s a great business model,” Schoenhals said.
Steadily and carefully, WSFS continued to rebuild. Taking advantage of the consolidations, it hired bankers who decided that bigger was not necessarily better, including veteran Karl Johnston, who would build the commercial lending operation, and young Mark Turner, who arrived in 1996 as controller. Turner became chief financial officer in 1998 and chief operating officer in 2001.
Just as its creation of the Plan Card had successfully captured the nation’s thirst for debit cards in the early 1970s, WSFS now capitalized on a change in federal law that would allow banks to charge fees for access to automated teller machines. In its own market, WSFS built an ATM network that now numbers 376 units. It also developed the Cash Connect network, now the second-largest ATM servicing operation in the United States, providing cash to 10,875 machines.
Ironically, the impetus for building the ATM network came in late 1996 from Levin, then CEO of the Happy Harry’s drug store chain, who wanted his customers to have easy access to cash while shopping at his stores. He first approached Wilmington Trust, which turned him down. He went to PNC Bank, which also declined, because it was putting its ATMs in Wawa convenience stores.
Then Levin called WSFS. By January 1997, they had a deal.
“About eight years later, [Wilmington Trust President] Bob Harra called and said he’d like to take them over,” Levin said. “Bob’s probably my closest friend, but I said, ‘No, I’m not going to upset all these WSFS customers.’ ”
[caption id="attachment_9692" align="alignleft" width="300" caption="New WSFS branch nears completion in Brandywine Hundred"]
WSFS also returned to statewide operation, reentering the Dover market in 1995 and Rehoboth in 2003. It now has five new branches under construction. By the end of May it will have 38 branches: 22 in New Castle County, four in Kent, eight in Sussex and four in southeastern Pennsylvania, with more planned for the second half of this year. And the corporation has a new headquarters, at 500 Delaware Avenue in Wilmington.
By 2002, Schoenhals had identified Turner as a future CEO, but neither he nor Johnston was ready to retire, and the more experienced Johnston did not want to be CEO. So Schoenhals created the “Office of the CEO,” with Johnston and Turner sharing responsibilities. The arrangement became what Turner called “a five-year succession plan. I was given different opportunities to round out my experience.”
As WSFS grew, Schoenhals said, it practiced moderation. Rather than chase the most profitable opportunities, the board and management set limits on lending, so it would not become overexposed in a particular category or geographic area.
The scars from 1990s near-disaster served as a warning not to repeat previous mistakes, Turner said.
As the real estate bubble inflated in the middle of the last decade, “we didn’t abandon the market, but we throttled back significantly,” Turner said. “When the bubble burst in 2008, we had some pain in our portfolios, but it was manageable pain.”
Moving forward, “that memory [of 1990 and 2008] will not quickly go away,” Turner said.
“Is [success] 100 percent guaranteed? No,” he said, “but we have been appropriately humbled, and that humility will serve us well as we grow.”