<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
-----------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-16668
WSFS FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-2866913
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
838 Market Street, Wilmington, Delaware 19899
- ------------------------------------------ ----------------
(Address of principal executive offices) (Zip Code)
(302)792-6000
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of November 5, 1999:
Common Stock, par value $.01 per share 11,319,244
- -------------------------------------- --------------------
(Title of Class) (Shares Outstanding)
<PAGE>
WSFS FINANCIAL CORPORATION
FORM 10-Q
INDEX
PART I. Financial Information
<TABLE>
<CAPTION>
Page
Item 1. Financial Statements
<S> <C>
Consolidated Statement of Operations for the Three and Nine Months
Ended September 30, 1999 and 1998 (Unaudited)...................................... 3
Consolidated Statement of Condition as of September 30, 1999
(Unaudited) and December 31, 1998.................................................. 4
Consolidated Statement of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 (Unaudited)............................................ 5
Notes to the Consolidated Financial Statements for the Three and Nine
Months Ended September 30, 1999 and 1998 (Unaudited)............................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................... 21
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K................................................... 22
Signatures ................................................................................... 23
</TABLE>
<PAGE>
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------- ----------------------
1999 1998 1999 1998
---- ---- ----- ----
(Unaudited)
(Dollars in Thousands)
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans ..................... $ 16,721 $ 16,957 $ 49,186 $ 51,586
Interest on mortgage-backed securities ......... 7,385 7,496 23,188 19,671
Interest and dividends on investment securities 571 655 1,722 2,385
Other interest income .......................... 2,499 2,206 7,434 7,675
-------- -------- -------- --------
27,176 27,314 81,530 81,317
-------- -------- -------- --------
Interest expense:
Interest on deposits ........................... 8,278 8,380 24,722 24,237
Interest on Federal Home Loan Bank advances .... 5,980 6,175 18,440 17,675
Interest on federal funds purchased and
securities sold under agreement to
repurchase ................................... 2,122 2,730 6,167 8,413
Interest on senior notes and trust preferred
borrowings .................................. 1,075 829 3,065 2,486
Interest on other borrowed funds ............... 132 99 317 263
-------- -------- -------- --------
17,587 18,213 52,711 53,074
-------- -------- -------- --------
Net interest income ................................. 9,589 9,101 28,819 28,243
Provision for loan losses ........................... 259 189 771 938
-------- -------- -------- --------
Net interest income after provision for loan losses . 9,330 8,912 28,048 27,305
-------- -------- -------- --------
Other income:
Loan and lease servicing fees .................. 833 899 2,569 2,596
Rental income on operating leases, net ......... 3,795 2,997 10,770 8,764
Deposit service charges ........................ 1,401 1,104 3,883 3,148
Credit/debit card and ATM income ............... 1,072 809 2,723 2,034
Securities gains (losses) ...................... (9) 4 (8) 280
Other income ................................... 310 588 1,246 1,439
-------- -------- -------- --------
7,402 6,401 21,183 18,261
-------- -------- -------- --------
Other expenses:
Salaries, benefits and other compensation ...... 4,906 3,855 14,325 12,149
Equipment expense .............................. 762 527 2,256 1,394
Data processing and operations expenses ........ 1,451 1,297 4,206 3,861
Occupancy expense .............................. 842 779 2,471 2,226
Marketing expense .............................. 372 391 1,080 938
Professional fees .............................. 550 390 1,282 1,243
Net costs of assets acquired through foreclosure 40 4 184 510
Other operating expense ........................ 1,711 1,842 5,222 5,008
-------- -------- -------- --------
10,634 9,085 31,026 27,329
-------- --------
Income before taxes ................................. 6,098 6,228 18,205 18,237
Income tax provision ................................ 1,586 1,619 4,734 4,741
-------- -------- -------- --------
Net income .......................................... $ 4,512 $ 4,609 $ 13,471 $ 13,496
======== ======== ======== ========
Earnings per share:
Basic .......................................... $ .40 $ .37 $ 1.19 $ 1.08
Diluted ........................................ .40 .37 1.18 1.07
Other comprehensive income, net of tax:
Net income ..................................... $ 4,512 $ 4,609 $ 13,471 $ 13,496
Net unrealized holding gains (losses) on
securities available-for-sale arising
during the period ........................... (72) 670 (3,156) 791
Less: reclassification adjustment for gains
(losses) included in net income .............. (6) 3 (5) 182
-------- -------- -------- --------
Comprehensive income ................................ $ 4,446 $ 5,276 $ 10,320 $ 14,105
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(Unaudited)
(Dollars in Thousands)
<S> <C> <C>
Assets
Cash and due from banks .................................................... $ 53,923 $ 55,848
Federal funds sold and securities purchased under agreements to resell ..... 18,100 20,900
Interest-bearing deposits in other banks ................................... 1,409 7,518
Investment securities held-to-maturity ..................................... 6,580 7,642
Investment securities available-for-sale ................................... 24,605 30,219
Mortgage-backed securities held-to-maturity ................................ 266,886 265,858
Mortgage-backed securities available-for-sale .............................. 198,981 193,226
Investment in reverse mortgages, net ....................................... 29,514 31,293
Loans held-for-sale ........................................................ 5,574 3,084
Loans, net of allowance for loan losses of $23,542 at September 30, 1999
and $23,689 at December 31, 1998 ......................................... 797,728 760,584
Vehicles under operating leases, net ....................................... 226,148 199,967
Equity investment .......................................................... 5,425 --
Stock in Federal Home Loan Bank of Pittsburgh, at cost ..................... 26,250 23,000
Assets acquired through foreclosure ........................................ 1,204 2,993
Premises and equipment ..................................................... 13,239 11,919
Accrued interest and other assets .......................................... 25,339 21,659
----------- -----------
Total assets ............................................................... $ 1,700,905 $ 1,635,710
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing demand ............................................. $ 111,489 $ 108,418
Money market and interest-bearing demand ............................... 75,527 68,208
Savings ................................................................ 244,613 218,334
Time ................................................................... 291,374 333,419
----------- -----------
Total retail deposits ................................................ 723,003 728,379
Jumbo certificates of deposit .......................................... 71,732 65,453
Brokered certificates of deposit ....................................... 114,543 64,468
----------- -----------
Total deposits ....................................................... 909,278 858,300
Federal funds purchased and securities sold under agreements to repurchase . 159,641 153,505
Federal Home Loan Bank advances ............................................ 450,000 460,000
Senior notes and trust preferred borrowings ................................ 50,000 50,000
Other borrowed funds ....................................................... 13,682 8,904
Accrued expenses and other liabilities ..................................... 27,199 19,249
----------- -----------
Total liabilities .......................................................... 1,609,800 1,549,958
----------- -----------
Commitments and contingencies
Stockholders' Equity:
Serial preferred stock $.01 par value, 7,500,000 shares authorized; none
issued and outstanding ................................................. -- --
Common stock $.01 par value, 20,000,000 shares authorized; issued
14,797,513 at September 30, 1999 and 14,695,688 at December 31, 1998 ... 148 147
Capital in excess of par ................................................... 58,084 57,696
Accumulated other comprehensive income (loss) .............................. (2,915) 236
Retained earnings .......................................................... 77,103 64,657
Treasury stock at cost, 3,478,269 shares at September 30, 1999 and 3,192,769
shares at December 31, 1998 ............................................ (41,315) (36,984)
----------- -----------
Total stockholders' equity ................................................. 91,105 85,752
----------- -----------
Total liabilities and stockholders' equity ................................. $ 1,700,905 $ 1,635,710
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,.
1999 1998
----------- ------------
(Unaudited)
(Dollars in Thousands)
Operating activities:
<S> <C> <C>
Net income .................................................................. $ 13,471 $ 13,496
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan, lease and residual value losses ....................... 2,358 1,784
Depreciation, accretion and amortization .................................. 2,429 894
Increase in accrued interest receivable and other assets .................. (1,952) (591)
Origination of loans held-for-sale ........................................ (28,622) (42,095)
Proceeds from sales of loans held-for-sale ................................ 26,091 43,107
Increase in accrued interest payable and other liabilities ................ 7,785 9,113
Increase in reverse mortgage capitalized interest, net .................... (5,033) (3,982)
Other, net ................................................................ 132 (726)
--------- ---------
Net cash provided by operating activities ...................................... 16,659 21,000
--------- ---------
Investing activities:
Net decrease in interest-bearing deposits in other banks .................... 6,109 15,948
Maturities of investment securities ......................................... 1,203 37,768
Sales of investment securities available-for-sale ........................... 20,000 20,055
Sales of mortgage backed securities available-for-sale ...................... -- 29,883
Purchases of investment securities held-to-maturity ......................... (295) (10,000)
Purchases of investment securities available-for-sale ....................... (14,785) (10,000)
Repayments of mortgage-backed securities held-to-maturity ................... 95,517 111,117
Repayments of mortgage-backed securities available-for-sale ................. 58,545 28,249
Purchases of mortgage-backed securities held-to-maturity .................... (96,444) (145,178)
Purchases of mortgage-backed securities available-for-sale .................. (69,147) (152,042)
Repayments of reverse mortgages ............................................. 14,162 12,996
Disbursements for reverse mortgages ......................................... (7,215) (7,545)
Sales of loans .............................................................. -- 11,255
Purchase of loans ........................................................... (26,384) (7,225)
Net decrease (increase) in loans ............................................ (12,486) 19,060
Net increase in operating leases ............................................ (37,446 (20,881)
Net increase in stock of Federal Home Loan Bank of Pittsburgh ............... (3,250) (1,498)
Equity investment ........................................................... (5,500) --
Sales of investment in real estate .......................................... -- 1,252
Sales of assets acquired through foreclosure, net ........................... 12,593 9,530
Premises and equipment, net ................................................. (3,124) (3,192)
--------- ---------
Net cash used for investing activities .......................................... (67,947) (60,448)
--------- ---------
Financing activities:
Net increase in demand and savings deposits ................................. 41,447 40,216
Net increase in time deposits ............................................... 14,024 20,149
Receipts from FHLB borrowings ............................................... 65,000 769,000
Repayments of FHLB borrowings ............................................... (75,000) (734,000)
Receipts from reverse repurchase agreements ................................. 41,911 201,846
Repayments of reverse repurchase agreements ................................. (35,775) (234,545)
Dividends paid on common stock .............................................. (1,025) (752)
Issuance of common stock .................................................... 364 262
Purchase of treasury stock .................................................. (4,383) (5,288)
--------- ---------
Net cash provided by financing activities ....................................... 46,563 56,888
--------- ---------
Increase (decrease) in cash and cash equivalents ................................ (4,725) 17,440
Cash and cash equivalents at beginning of period ................................ 76,748 52,746
--------- ---------
Cash and cash equivalents at end of period ...................................... $ 72,023 $ 70,186
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest during the year .......................................... $ 46,097 $ 46,603
Cash paid for income taxes ...................................................... 891 1,987
Loans and leases transferred to assets acquired through foreclosure ............. 10,814 6,316
Net change in unrealized gains (losses) on securities available-for-sale,
net of tax .................................................................. (3,151) 609
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
WSFS FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
WSFS Financial Corporation (the Corporation) is a thrift holding company
headquartered in the state of Delaware. The Corporation has two wholly-owned
subsidiaries, Wilmington Savings Fund Society, FSB, (the Bank or WSFS) a thrift
conducting business in the Mid-Atlantic region and WSFS Capital Trust I, a
company formed to issue Trust Preferred Securities to be invested in Junior
Subordinated Debentures of the Corporation. The consolidated financial
statements include the accounts of the parent company, WSFS Capital Trust I, the
Bank and its wholly-owned subsidiaries: WSFS Credit Corporation (WCC), Community
Credit Corporation (CCC), 838 Investment Group, Inc. and Star States Development
Company, (SSDC).
The consolidated statement of condition as of September 30, 1999, the
consolidated statement of operations for the three and nine months ended
September 30, 1999 and 1998 and the consolidated statement of cash flows for the
nine months ended September 30, 1999 and 1998 are unaudited and include all
adjustments solely of a normal recurring nature which management believes are
necessary for a fair presentation. All significant intercompany transactions are
eliminated in consolidation. Certain reclassifications have been made to prior
period's financial statements to conform them to the September 30, 1999
presentation. The results of operations for the three and nine month periods
ending September 30, 1999 are not necessarily indicative of the expected results
for the full year ending December 31, 1999. The accompanying unaudited financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Corporation's 1998 Annual Report.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share (in thousands, except per share data).
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
---------------------- ----------------------
1999 1998 1999 1998
------- ------- ------- -------
Numerator:
<S> <C> <C> <C> <C>
Net income ................................... $ 4,512 $ 4,609 $13,471 $13,496
======= ======= ======= =======
Denominator:
Denominator for basic earnings per share -
weighted average shares ................... 11,319 12,433 11,363 12,467
Effect of dilutive securities:
Employee stock options ..................... 28 128 63 168
------- ------- ------- -------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed exercise of stock options .......... 11,347 12,561 11,426 12,635
======= ======= ======= =======
Basic earnings per share ..................... $ .40 $ .37 $ 1.19 $ 1.08
======= ======= ======= =======
Diluted earnings per share ................... $ .40 $ .37 $ 1.18 $ 1.07
======= ======= ======= =======
</TABLE>
3. EQUITY INVESTMENT
In August 1999, WSFS Financial Corporation invested $5.5 million in
CustomerOne Financial Network, Inc. (C1FN), a corporation formed in 1998
for the express purpose of providing direct-to-consumer marketing,
servicing, Internet development and technology management for "branchless"
financial services. With this investment, WSFS has approximately a 25%
ownership in C1FN and is its largest single shareholder. In addition, WSFS
received warrants for the purchase of an additional 20% ownership as well
as the opportunity, and under certain circumstances, the obligation, to
invest an additional $5.4 million in C1FN, at current offered ownership
prices. Under the planned structure, C1FN's Internet-only banking structure
will become part of everbank.com(TM), a division of WSFS. Everbank.com(TM)
began marketing Internet-only banking to a national clientele in November
1999. At September 30, 1999, this investment was accounted for under the
equity method. Given that WSFS expects to obtain a controlling interest in
C1FN in the fourth quarter of 1999, it is anticipated that C1FN will be
consolidated into WSFS Financial Corporation's financial statements at
December 31,1999.
<PAGE>
WSFS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
WSFS Financial Corporation (the Corporation) is a savings and loan holding
company headquartered in Wilmington, Delaware. Substantially all of the
Corporation's assets are held by its subsidiary, Wilmington Savings Fund
Society, FSB (the Bank or WSFS). The long-term goal of the Corporation is to be
a high-performing, customer-centered financial services company focused on its
core, banking business in Delaware, while developing unique, profitable niches
in complementary businesses which may operate outside the Bank's geographical
footprint.
Founded in 1832, WSFS is one of the oldest financial institutions in the
country. It has operated under the same name and charter serving the residents
of Delaware for over 167 years. WSFS is the largest thrift institution
headquartered in Delaware and is the fourth largest financial institution in the
state on the basis of deposits traditionally garnered in-market. The
Corporation's market area is the Mid-Atlantic region of the United States,
characterized by a diversified manufacturing and service economy.
The Bank provides cash management services as well as residential real
estate, and commercial and consumer lending services, funding these credit
activities by attracting retail deposits and borrowings. Deposits are insured by
the Federal Deposit Insurance Corporation. WSFS also has the largest off-premise
ATM network in the state of Delaware.
Other operating subsidiaries of the Bank include WSFS Credit Corporation,
engaged primarily in motor vehicle leasing; 838 Investment Group, Inc., which
markets insurance products and securities; and Community Credit Corporation, a
consumer finance company specializing in consumer loans secured by first and
second mortgages.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Financial Condition
Total assets increased $65.2 million during the nine months ended September
30, 1999. Asset growth included increases of $37.1 million in net loans and
$26.2 million in vehicles under operating leases. The increase in loans was
primarily due to a $42.4 million increase in residential mortgages. In addition,
the increase in loans is net of the large commercial loan prepayments of $23.9
million that occurred during the first quarter of 1999.
Total liabilities increased $59.8 million between December 31, 1998 and
September 30, 1999. During the first nine months of 1999, total deposits grew by
$51.0 million, the result of the influx of jumbo certificates of deposit and the
acquisition of $50.1 million in brokered deposits. Interest credited to deposits
totaled $14.7 million for a net deposit growth of $36.3 million.
Capital Resources
Stockholders' equity increased $5.4 million between December 31, 1998 and
September 30, 1999. This increase reflects net income of $13.5 million for the
first nine months of 1999 partially offset by a $3.2 million increase in net
unrealized holding losses on securities available-for-sale for the nine month
period. In addition, treasury stock increased $4.3 million as a result of the
purchase of 290,000 treasury shares, less the re-issuance of 4,500 shares of
treasury stock to the Board of Directors as part of their annual retainer. At
September 30, 1999, the Corporation held in its treasury 3,478,269 shares of its
common stock at a cost of $41.3 million.
<PAGE>
A table presenting the Bank's consolidated capital position relative to the
minimum regulatory requirements as of September 30, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
To be Well-Capitalized
Consolidated For Capital Under Prompt Corrective
Bank Capital Adequacy Purposes Action Provisions
------------ ----------------- -----------------
Percentage of Percentage of Percentage of
Amount Assets Amount Assets Amount Assets
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk-Weighted Assets) .... $139,053 12.68% $ 87,696 8.00% $109,620 10.00%
Core Capital (to Adjusted
Tangible Assets) ............. 130,962 7.69 68,088 4.00 85,110 5.00
Tangible Capital (to Tangible
Assets) ...................... 130,741 7.68 25,530 1.50 N/A N/A
Tier 1 Capital (to Risk-Weighted
Assets) ...................... 130,962 11.95 N/A N/A 65,772 6.00
</TABLE>
Under Office of Thrift Supervision (OTS) capital regulations, savings
institutions such as the Bank must maintain "tangible" capital equal to 1.5% of
adjusted total assets, "core" capital equal to 4.0% of adjusted total assets and
"total" or "risk-based" capital (a combination of core and "supplementary"
capital) equal to 8.0% of risk-weighted assets. In addition, OTS regulations
impose certain restrictions on savings associations that have a total risk-based
capital ratio that is less than 8.0%, a ratio of tier 1 capital to risk-weighted
assets of less than 4.0% or a ratio of tier 1 capital to adjusted total assets
of less than 4.0% (or 3.0% if the institution is rated Composite 1 under the OTS
examination rating system). For purposes of these regulations, tier 1 capital
has the same definition as core capital. At September 30, 1999, the Bank is in
compliance with all regulatory capital requirements and is classified as a "well
capitalized" institution. Management anticipates that the Bank will continue to
be classified as well-capitalized.
Liquidity
The OTS requires institutions, such as the Bank, to maintain a 4.0% minimum
liquidity ratio of cash and qualified assets to net withdrawable deposits and
borrowings due within one year. At September 30, 1999, the Bank's liquidity
ratio was 6.0% compared to 10.6% at December 31, 1998. Management monitors
liquidity daily and maintains funding sources to meet unforeseen changes in cash
requirements. It is the policy of the Bank to maintain cash and investments at
least slightly above required levels. The Corporation's primary financing
sources are deposits, repayments of loans and investment securities, sales of
loans and borrowings. In addition, the Corporation's liquidity requirements can
be accomplished through the use of its borrowing capacity from the FHLB of
Pittsburgh, the sale of certain securities and the pledging of certain loans for
other lines of credit. Management believes these sources are sufficient to
maintain the required and prudent levels of liquidity.
<PAGE>
NONPERFORMING ASSETS
The following table sets forth the Corporation's nonperforming assets,
restructured loans and past due loans at the dates indicated. Past due loans are
loans contractually past due 90 days or more as to principal or interest
payments but which remain on accrual status because they are considered well
secured and in the process of collection.
<TABLE>
<CAPTION>
September, 30 December 31,
1999 1998
------------- ------------
(Dollars in Thousands)
Nonaccruing loans:
<S> <C> <C>
Commercial ....................................... $ 1,857 $ 2,182
Consumer ......................................... 219 381
Commercial mortgages ............................. 2,319 2,383
Residential mortgages ............................ 2,351 3,068
Construction ..................................... 1 --
------- -------
Total nonaccruing loans ............................... 6,747 8,014
Nonperforming investments in real estate .............. -- 76
Assets acquired through foreclosure ................... 1,204 2,993
------- -------
Total nonperforming assets ............................ $ 7,951 $11,083
======= =======
Restructured loans .................................... $ -- $ --
======= =======
Past due loans:
Residential mortgages ............................ $ 354 $ 247
Commercial and commercial mortgages .............. 2,612 2,654
Consumer ......................................... 222 86
------- -------
Total past due loans .................................. $ 3,188 $ 2,987
======= =======
Ratios:
Nonperforming loans/leases to total
loans/leases (1) .............................. 0.64% 0.81%
Allowance for loan/lease losses to total gross
Loans/leases (1) .............................. 2.36 2.49
Nonperforming assets to total assets ............. .47 .68
Loan loss/lease loss allowance to nonaccruing
loans/leases (2) .............................. 356.88 307.97
Loan/lease and foreclosed asset allowance to total
Nonperforming assets (2) ....................... 306.53 225.05
</TABLE>
(1) Total loans exclude loans held for sale.
(2) The applicable allowance represents general valuation allowances only.
Nonperforming assets decreased $3.1 million between September 30, 1999 and
December 31, 1998. This decrease resulted primarily from a $1.8 million decline
in assets acquired through foreclosure, of which $1.3 million was related to one
commercial property. An analysis of the change in the balance of nonperforming
assets is presented on the following page.
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1999 December 31, 1998
------------------ ------------------
(In Thousands)
<S> <C> <C>
Beginning balance......................................... $ 11,083 $ 13,892
Additions ........................................... 13,503 18,809
Collections/sales ................................... (14,026) (17,029)
Transfers to accrual/restructured status............. (1,781) (2,880)
Provisions, charge-offs, other adjustments........... (828) (1,709)
----------- -----------
Ending balance............................................ $ 7,951 $ 11,083
========== =========
</TABLE>
The timely identification of problem loans is a key element in the
Corporation's strategy to manage its loan portfolios. Timely identification
enables the Corporation to take appropriate action and, accordingly, minimize
losses. An asset review system established to monitor the asset quality of the
Corporation's loans and investments in real estate portfolios facilitates the
identification of problem assets. In general, this system utilizes guidelines
established by federal regulation; however, there can be no assurance that the
levels or the categories of problem loans and assets established by the Bank are
the same as those which would result from a regulatory examination.
INTEREST RATE SENSITIVITY
The matching of maturities or repricing periods of interest-sensitive
assets and liabilities to ensure a favorable interest rate spread and mitigate
exposure to fluctuations in interest rates is the Corporation's primary focus
for achieving its asset/liability management strategies. Interest rate-sensitive
assets of the Corporation include cash flows that relate to the principal of the
operating lease portfolio, which are interest-rate sensitive. The trust
preferred borrowing is classified in the less than one-year category reflecting
the variable rate feature of the instrument. An interest rate cap was purchased
in 1998 in order to limit its interest rate risk exposure. Management regularly
reviews interest-rate sensitivity of the Corporation and adjusts sensitivity
within acceptable tolerance ranges established by management as needed. At
September 30, 1999, interest-bearing liabilities exceeded interest-earning
assets that mature within one year (interest-sensitivity gap) by $94.1 million.
The Corporation's interest-sensitive assets as a percentage of
interest-sensitive liabilities within the one-year window decreased to 89.4% at
September 30, 1999 compared to 97.6% at December 31, 1998. Likewise, the
one-year interest-sensitive gap as a percentage of total assets decreased to a
negative 5.53% from a negative 1.21% at December 31, 1998. The change is the
result of the Corporation's continuing effort to effectively manage interest
rate risk.
COMPARISON FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Results of Operations
The Corporation reported net income of $4.5 million, or $.40 per share
(diluted), for the three months ended September 30, 1999, compared to $4.6
million, or $.37 per share (diluted), for the third quarter of 1998. Net income
for the nine months ended September 30, 1999 was $13.5 million, or $1.18 per
share (diluted), compared to $13.5 million, or $1.07 per share (diluted), for
the same period last year. The improvement of earnings per share reflects the
Corporation's stock repurchase program, which reduced average shares outstanding
by approximately 10% between periods.
Net Interest Income
The table on the following page, dollars expressed in thousands, provides
information concerning the balances, yields and rates on interest-earning assets
and interest-bearing liabilities during the periods indicated.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------------------------------------------------------
1999 1998
------------------------------------- -----------------------------------
Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate (1)
------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans (2) (3):
Real estate loans (4)............ $ 528,715 $ 10,708 8.10% $ 504,116 $ 11,200 8.89%
Commercial loans ................ 99,101 1,858 8.47 88,789 1,695 8.85
Consumer loans................... 168,876 4,063 9.55 162,057 3,997 9.79
------- --------- ---------- -----------
Total loans.................... 796,692 16,629 8.49 754,962 16,892 9.12
Mortgage-backed securities (5)........ 471,840 7,385 6.26 465,335 7,496 6.44
Loans held for sale (3)............... 5,075 92 7.25 3,310 65 7.85
Investment securities (5)............. 36,269 571 6.30 41,293 655 6.34
Other interest-earning assets ........ 72,253 2,499 13.53 95,603 2,206 9.03
----------- --------- --------- -----------
Total interest-earning assets.... 1,382,129 27,176 7.95 1,360,503 27,314 8.12
--------- ----------
Allowance for loan losses............. (23,677) (24,491)
Cash and due from banks............... 53,738 28,047
Vehicles under operating lease, net... 225,225 180,615
Other noninterest-earning assets...... 38,844 33,739
----------- ----------- -
Total assets..................... $1,676,259 $1,578,413
========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand................. $ 71,537 373 2.07 $ 60,921 393 2.56
Savings.......................... 244,088 1,925 3.13 197,746 1,631 3.27
Retail time deposits ............ 295,134 3,429 4.61 343,698 4,656 5.37
Jumbo certificates of deposits .. 67,663 898 5.27 44,818 638 5.65
Brokered certificates of deposit. 114,520 1,653 5.73 64,353 1,062 6.55
---------- -------- ---------- ----------
Total interest-bearing deposits 792,942 8,278 4.14 711,536 8,380 4.67
FHLB of Pittsburgh advances........... 450,000 5,980 5.27 435,000 6,175 5.63
Senior notes and trust preferred
borrowings ....................... 50,000 1,075 8.60 29,100 829 11.39
Other borrowed funds.................. 158,840 2,254 5.68 198,104 2,829 5.71
----------- --------- ----------- ----------
Total interest-bearing liabilities 1,451,782 17,587 4.85 1,373,740 18,213 5.30
--------- ----------
Noninterest-bearing demand deposits... 110,409 86,118
Other noninterest-bearing liabilities. 25,174 21,743
Stockholders' equity.................. 88,894 96,812
----------- ------------
Total liabilities and stockholders'
equity........................ $ 1,676,259 $1,578,413
=========== ==========
Deficit of interest-earning assets over
interest-bearing liabilities..... $ (69,653) $ (13,237)
=========== =============
Net interest and dividend income...... $ 9,589 $ 9,101
========= =========
Interest rate spread.................. 3.10% 2.82%
==== ====
Net interest margin................... 2.86% 2.77%
==== ====
Net interest and dividend income to
total average assets............. 2.36% 2,39%
==== ====
</TABLE>
(1) Weighted average yields have been computed on a tax-equivalent basis.
(2) Nonperforming loans are included in average balance computations.
(3) Balances are reflected net of unearned income.
(4) Includes commercial mortgage loans.
(5) Includes securities available-for-sale.
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------------------------------------------
1999 1998
------------------------------------- ------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate(1)
------- -------- ------- ------- -------- -------
Assets
Interest-earning assets:
Loans (2) (3):
<S> <C> <C> <C> <C> <C> <C>
Real estate loans (4)............ $ 522,467 $ 31,817 8.12% $ 510,397 $ 34,569 9.03%
Commercial loans ................ 95,812 5,264 8.42 88,308 5,088 8.99
Consumer loans................... 166,821 11,926 9.56 160,518 11,755 9.79
------- --------- ---------- ----------
Total loans.................... 785,100 49,007 8.47 759,223 51,412 9.19
Mortgage-backed securities (5)........ 492,054 23,188 6.28 405,197 19,671 6.47
Loans held for sale (3)............... 3,298 179 7.24 2,963 174 7.83
Investment securities (5)............. 36,658 1,722 6.26 49,853 2,385 6.38
Other interest-earning assets ........ 80,107 7,434 12.24 109,230 7,675 9.27
----------- --------- ---------- ----------
Total interest-earning assets.... 1,397,217 81,530 7.86 1,326,466 81,317 8.27
--------- ----------
Allowance for loan losses............. (23,625) (24,744)
Cash and due from banks............... 49,033 24,288
Vehicles under operating lease, net... 216,463 175,889
Other noninterest-earning assets...... 37,148 33,365
----------- ----------
Total assets..................... $1,676,236 $1,535,264
========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand................. $ 69,975 1,115 2.13 $ 60,462 1,166 2.58
Savings.......................... 233,389 5,293 3.03 184,718 4,375 3.17
Retail time deposits............. 308,318 10,844 4.70 344,478 13,907 5.40
Jumbo certificates of deposit.... 73,370 2,878 5.24 37,818 1,611 5.70
Brokered certificates of deposit. 103,614 4,592 5.93 64,260 3,178 6.61
---------- --------- ---------- ----------
Total interest-bearing deposits 788,666 24,722 4.19 691,736 24,237 4.68
FHLB of Pittsburgh advances........... 467,180 18,440 5.28 416,868 17,675 5.67
Senior notes and trust preferred borrowings 50,000 3,065 8.17 29,100 2,486 11.39
Other borrowed funds.................. 154,277 6,484 5.60 201,402 8,676 5.74
----------- --------- ---------- ----------
Total interest-bearing liabilities 1,460,123 52,711 4.81 1,339,106 53,074 5.28
--------- ----------
Noninterest-bearing demand deposits... 106,180 82,574
Other noninterest-bearing liabilities. 21,857 19,732
Stockholders' equity.................. 88,076 93,852
----------- ----------
Total liabilities and stockholders'
equity........................... $1,676,236 $1,535,264
========== ==========
Deficit of interest-earning assets over
interest-bearing liabilities..... $ (62,906) $ (12,640)
=========== ==========
Net interest and dividend income...... $ 28,819 $ 28,243
========= ==========
Interest rate spread.................. 3.05% 2.99%
==== ====
Net interest margin................... 2.83% 2.93%
==== ====
Net interest and dividend income to
total average assets............. 2.36% 2.53%
==== ====
</TABLE>
(1) Weighted average yields have been computed on a tax-equivalent basis.
(2) Nonperforming loans are included in average balance computations.
(3) Balances are reflected net of unearned income.
(4) Includes commercial mortgage loans.
(5) Includes securities available-for-sale.
<PAGE>
Net interest income increased $488,000 between the three months ended
September 30, 1999 and 1998. The net interest margin increased 9 basis points
between the comparable quarters primarily due to a reduced cost of funding.
Total interest income decreased $138,000 between the comparable three month
periods. The yield on loans declined 63 basis points from 9.12% to 8.49% over
the three months ended September 30, 1999 and 1998. The yield on mortgage-backed
securities also declined from 6.44% to 6.26%. Total interest expense declined
$626,000 between the three months ended September 30, 1999 and 1998. The cost of
interest-bearing deposits was reduced by 53 basis points between the comparable
periods, the result of favorable repricing. The cost of borrowings, including
trust-preferred borrowings declined 29 basis points to 5.65% from 5.94% over the
same period.
Net interest income increased $576,000 between the nine months ended
September 30, 1999 and 1998. The net margin declined 10 basis points between
comparable quarters primarily due to the $40.6 million growth in the average
operating lease portfolio, which significantly enhances fee income but
expectedly depresses the margin as the funding costs are reflected in interest
expense. Total interest income increased $213,000 between 1999 and 1998
primarily due to the increase in mortgaged-backed securities. The average
investment in mortgage-backed securities increased $86.9 million between the
nine months ended September 30, 1999 and 1998. In addition, total average loans
increased $25.9 million, between 1999 and 1998, however the yield on loans
declined by 72 basis points. The yield on mortgage-backed securities also
declined from 6.47% to 6.28% over the same period. Total interest expense
decreased $363,000 between the nine months ended September 30, 1999 and 1998.
The decrease is attributed to the reduction in the cost of funds. The cost of
interest-bearing deposits was reduced by 49 basis points between 1999 and 1998.
The cost of borrowings, including trust-preferred borrowings declined 38 basis
points to 5.56% from 5.94% over the same period.
Allowance for Loan/Lease Losses:
The Corporation maintains allowances for credit losses and charges losses
to these allowances when such losses are realized. The allowances for losses are
maintained at a level which management considers adequate to provide for losses
based upon an evaluation of known and inherent risks in the portfolios.
Management's evaluation is based upon a continuing review of the portfolios.
The following table represents a summary of the changes in the allowance
for loan losses during the periods indicated.
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
------------------- -------------------
(Dollars in Thousands)
Beginning balance ............. $23,689 $24,850
Provision for loan losses ..... 771 938
Charge-offs:
Residential real estate .. 164 184
Commercial real estate (1) 537 388
Commercial ............... 16 648
Consumer (2) ............. 754 858
------- -------
Total charge-offs ..... 1,471 2,078
------- -------
Recoveries:
Residential real estate .. -- 6
Commercial real estate (1) 256 121
Commercial ............... 105 20
Consumer (2) ............. 192 118
------- -------
Total charge-offs ..... 553 265
------- -------
Net charge-offs ............... 918 1,813
------- -------
Ending balance ................ $23,542 $23,975
======= =======
<PAGE>
The following table represents a summary of the changes in the allowance
for lease credit losses during the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
----------------------- ----------------------
(Dollars in Thousands)
<S> <C> <C>
Beginning balance ............................................ $ 992 $ 1,097
Provision for losses on vehicles under operating leases....... 648 422
Charge-offs................................................... 501 640
Recoveries ................................................... 198 163
--------- ----------
Net charge-offs .............................................. 303 477
--------- ---------
Ending balance ............................................... $ 1,337 $ 1,042
========= ========
Net charge-offs to average gross loans/leases outstanding,
net of unearned income (3)............................... .16% .33%
========= ==========
</TABLE>
(1) Includes commercial mortgages and construction loans.
(2) Includes finance-type leases.
(3) Ratio is annualized.
<PAGE>
Other Income
Noninterest income increased $1.0 million between the three months ended
September 30, 1998 and 1999. This increase resulted primarily from net rental
income on operating leases, which increased $798,000, between the comparable
quarters. The growth in rental income was attributable to a 25% increase in the
average balance of vehicles under operating leases between September 30, 1998
and 1999. In addition, deposit service charges increased $297,000 during the
quarter ended September 30, 1999 in comparison to the quarter ended September
30, 1998, due to increased fees along with the addition of six new branches.
Credit/debit and ATM fee income increased $263,000 between the third quarters of
1999 and 1998 primarily due to the expansion of the Bank's ATM network and
increased usage of the Company's debit card. Partially offsetting these
increases was the other income category, which decreased $278,000 between the
comparable periods. Other income included a $75,000 loss related to CustomerOne
Financial Network, Inc. (C1FN), based on the equity method of accounting. This
represents 25% (WSFS' percentage of ownership of C1FN) of C1FN's loss for the
month of September. In addition this category included $82,000 in gains on the
sale of loans during 1998 compared to a $6,000 loss in 1999.
Noninterest income increased $2.9 million between the nine months ended
September 30, 1998 and 1999. This increase resulted primarily from net rental
income on operating leases, which increased $2.0 million between the nine months
ended September 30, 1998 and 1999, the result of a 23% rise in the average
balance of vehicles under operating leases during the comparable periods. In
addition, deposit service charges increased $735,000 while credit/debit card and
ATM fee income increased $689,000 between the comparable time period. Partially
offsetting these increases was a decline in securities gains of $288,000.
Other Expenses
Noninterest expenses increased $1.5 million between the quarters ended
September 30, 1998 and 1999. Higher salary, equipment, data processing and
occupancy expenses accounted for the planned increase and were primarily
associated with six new retail banking offices, expansion of the fee generating
ATM network and investments in technology for enhanced customer service
capabilities.
Noninterest expenses increased $3.7 million between the nine months ended
September 30, 1998 and 1999. Consistent with the quarterly results, higher
salary, equipment, data processing and occupancy expenses accounted for the
planned increase and were primarily associated with six new retail banking
offices, expansion of the fee generating ATM network and investments in
technology for enhanced customer service capabilities. Partially offsetting
these increases was a $326,000 decline in net costs of assets acquired through
foreclosure, the result of the decline in problem assets.
Income Taxes
The Corporation and its subsidiaries file a consolidated federal income tax
return and separate state income tax returns. Income taxes are accounted for in
accordance with SFAS No. 109, which requires the recording of deferred income
taxes for tax consequences of "temporary differences". The Corporation recorded
a provision for income taxes during the three and nine months ended September
30, 1999 of $1.6 million and $4.7 million, respectively, compared to an income
tax provision of $1.6 million and $4.7 million, for the comparable periods of
1998. The effective tax rates for the three and nine months ended September 30,
1999 were 26% compared to 26%, which is essentially the same as comparable
periods in 1998. These effective rates reflect the recognition in the financial
statements of certain tax benefits from a previous acquisition of a reverse
mortgage lender into the Corporation; and from a fifty-percent interest income
exclusion on an ESOP loan.
The Corporation analyzes its projections of taxable income on an ongoing
basis and makes adjustments to its provision for income taxes accordingly.
<PAGE>
SEGMENT INFORMATION
Under the definition of SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information, the Corporation has two operating segments:
Wilmington Savings Fund Society, FSB (Bank) and WSFS Credit Corporation (WCC).
The Bank segment provides financial products through its branch network to
consumer and commercial customers. The WCC segment provides loans and leases
indirectly through unrelated auto dealerships primarily in the Mid-Atlantic
region.
Reportable segments are business units that offer different services to
distinct customers. The reportable segments are managed separately because they
operate under different regulations and provide services to distinct customers.
The Corporation evaluates performance based on pre-tax ordinary income and
allocates resources based on these results. Segment information, expressed in
thousands, for the three and nine months ended September 30, 1999 and 1998
follow:
<TABLE>
<CAPTION>
For the three months ended September 30,
------------------------------------------------------------------------------
1999 1998
------------------------------------- ------------------------ ---------
Bank WCC Total Bank WCC Total
--------- --------- --------- --------- --------- ---------
External customer revenues:
<S> <C> <C> <C> <C> <C> <C>
Interest income........................... $ 26,682 $ 494 $ 27,176 $ 26,719 $ 595 $ 27,314
Other income ............................. 3,240 4,162(1) 7,402 2,934 3,467(1) 6,401
--------- --------- --------- --------- --------- ---------
Total external customer revenues ............. 29,922 4,656 34,578 29,653 4,062 33,715
--------- --------- --------- --------- --------- ---------
Intersegment revenues:
Interest income........................... 3,220(2) - 3,220 2,795(2) - 2,795
Other income ............................. 23 1 24 19 2 21
--------- --------- --------- --------- --------- ---------
Total intersegment revenues .................. 3,243 1 3,244 2,814 2 2,816
--------- --------- --------- --------- --------- ---------
Total revenue................................. 33,165 4,657 37,822 32,467 4,064 36,531
--------- --------- --------- --------- --------- ---------
External customer expenses:
Interest expense ......................... 17,587 - 17,587 18,213 - 18,213
Other expenses............................ 9,873 416 10,289 8,376 447 8,823
Other depreciation and amortization....... 586 18 604 431 20 451
--------- --------- --------- --------- --------- ---------
Total external customer expenses ............. 28,046 434 28,480 27,020 467 27,487
--------- --------- --------- --------- --------- ---------
Intersegment expense:
Interest expense.......................... - 3,220(2) 3,220 - 2,795(2) 2,795
Other expenses............................ 1 23 24 2 19 21
--------- --------- --------- --------- --------- ---------
Total intersegment expenses .................. 1 3,243 3,244 2 2,814 2,816
--------- --------- --------- --------- --------- ---------
Total expenses ............................... 28,047 3,677 31,724 27,022 3,281 30,303
--------- --------- --------- --------- --------- ---------
Income before taxes........................... 5,118 980 6,098 5,445 783 6,228
--------- ---------
Provision for income taxes ................... 1,586 1,619
--------- ---------
Consolidated net income ...................... $ 4,512 $ 4,609
========= ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
For the nine months ended September 30,
-------------------------------------------------------------------------------
1999 1998
-------------------------------------- ----------------------------------
Bank WCC Total Bank WCC Total
External customer revenues:
<S> <C> <C> <C> <C> <C> <C>
Interest income........................... $ 80,012 $ 1,518 $ 81,530 $ 79,492 $ 1,825 $ 81,317
Other income ............................. 9,293 11,890(1) 21,183 8,335 9,926(1) 18,261
--------- ---------- --------- --------- ---------- ---------
Total external customer revenues ............. 89,305 13,408 102,713 87,827 11,751 99,578
--------- ---------- --------- --------- ---------- ---------
Intersegment revenues:
Interest income........................... 9,271(2) - 9,271 8,369(2) - 8,369
Other income ............................. 68 4 72 61 6 67
--------- ---------- --------- --------- ---------- ---------
Total intersegment revenues .................. 9,339 4 9,343 8,430 6 8,436
--------- ---------- --------- --------- ---------- ---------
Total revenue................................. 98,644 13,412 112,056 96,257 11,757 108,014
--------- ---------- --------- --------- ---------- ---------
External customer expenses:
Interest expense ......................... 52,711 - 52,711 53,074 - 53,074
Other expenses............................ 28,737 1,270 30,007 25,679 1,330 27,009
Other depreciation and amortization....... 1,732 58 1,790 1,198 60 1,258
--------- ---------- --------- --------- ---------- ---------
Total external customer expenses ............. 83,180 1,328 84,508 79,951 1,390 81,341
--------- ---------- --------- --------- ---------- ---------
Intersegment expense:
Interest expense.......................... - 9,271(2) 9,271 - 8,369(2) 8,369
Other expenses............................ 4 68 72 6 61 67
--------- ---------- --------- --------- ---------- ---------
Total intersegment expenses .................. 4 9,339 9,343 6 8,430 8,436
--------- ---------- --------- --------- ---------- ---------
Total expenses ............................... 83,184 10,667 93,851 79,957 9,820 89,777
--------- ---------- --------- --------- ---------- ---------
Income before taxes........................... 15,460 2,745 18,205 16,300 1,937 18,237
--------- ---------
Provision for income taxes ................... 4,734 4,741
Consolidated net income ...................... $ 13,471 $ 13,496
========== =========
</TABLE>
<TABLE>
<CAPTION>
At (for) the nine months ended September 30,
-------------------------------------------------------------------------------
1999 1998
-------------------------------------- ----------------------------------
Bank WCC Total Bank WCC Total
<S> <C> <C> <C> <C> <C> <C>
Segment assets................................ $1,681,097 $250,983 $1,932,080 $1,584,415 $212,248 $1,796,663
Elimination intersegment receivables.......... (231,175) (200,971)
----------- --------
Consolidated assets........................... $1,700,905 $1,595,692
=========== ==========
Capital expenditures.......................... $ 3,293 $ 37 $ 3,330 $ 3,203 $ 13 $ 3,216
</TABLE>
(1) Operating lease income net of depreciation and loss provision.
(2) Inter-segment interest based on the Corporations weighted average wholesale
borrowing costs which was 5.65% and 5.94% for the three months ended
September 30, 1999 and 1998, respectively and 5.56% and 5.94% for the nine
months ended September 30, 1999 and 1998, respectively.
<PAGE>
ACCOUNTING DEVELOPMENTS
In June 1998 the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
was subsequently amended in July 1999 by SFAS No. 137. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The accounting for changes
in the fair value of derivatives depends on the derivative and resulting
designation. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of certain foreign currency exposures. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company has not yet
determined the impact, if any, of this Statement, including its provisions for
the potential reclassifications of investment securities, on operations,
financial condition or equity.
YEAR 2000
Banking, by its nature, is a very data processing intensive industry.
Year 2000 issues result from the inability of many computer programs or
computerized equipment to accurately calculate, store or use a date after
December 31, 1999. These potential shortcomings could result in a system failure
or miscalculations causing disruptions of operation, including among other
things, a temporary inability to process transactions, calculate interest
payments, track important customer information, provide convenient access to
this information, or engage in normal business operations.
WSFS is subject to the regulation and supervision of various banking
regulators, whose oversight includes providing specific timetables, programs and
guidance regarding Year 2000 issues. Regulatory examination of the WSFS Year
2000 programs are conducted periodically and reports are submitted by the Bank
to the banking regulators and the Board of Directors on a periodic basis.
From a technology perspective, WSFS uses application software systems
and receives technical support from one of the world's largest data processing
providers to financial institutions, for nearly all of its critical customer
accounting applications. This company has extensive resources dedicated at their
corporate level to assist their financial institution customers, including WSFS,
in the effort to become Year 2000 compliant.
WSFS has completed an assessment of its core financial and operational
software systems and has found them already in compliance, or has developed a
plan that is directed toward bringing non-complaint systems into compliance. Its
Year 2000 Project Plan is in place and is progressing on schedule.
WSFS has completed the renovation, testing and re-installation of 100%
of its internally maintained Mission Critical Systems including those systems
that comprise the books and records of the bank. Its renovation effort is
substantially complete for both Significant Impact and Low Impact Systems as
well, with approximately 99% of the renovation work effort for all systems
complete as of September 30, 1999. WSFS has taken a proactive approach in
working with several financial industry service providers, such as ATM networks
and card processors, to help increase the probability that WSFS customers will
have uninterrupted service into the Year 2000.
Plans have been developed and are being implemented to address and
track compliance in other areas of the organization. The infrastructure plan
addresses physical facilities, for example: building security systems, fire
alarm systems, heating and air conditioning and business equipment, for example:
fax machines, copiers, vaults, ATMs, postage machines and forms.
<PAGE>
Systems outside of the direct control of WSFS, such as ATM networks,
credit card processors, and the Fed Wire System, pose a more problematic issue.
A theoretical problem scenario could involve a temporary inability of customers
to access their funds through automated teller machines, point of service
terminals at retailer locations, or other shared networks. For this reason
alone, banks and their governing agencies are closely scrutinizing the progress
of our major industry service providers.
WSFS plans include a review of the Year 2000 efforts of our suppliers,
vendors and other business relationships to encourage the timely resolution of
product or service compliance issues. WSFS has completed a review of the Year
2000 risks in its customer base and plans to continue to evaluate these risks.
WSFS has developed contingencies for various Year 2000 problem
scenarios. These contingency plans range from converting from third-party
providers that we do not feel are adequately prepared for the Year 2000, to the
temporary manual processing of certain critical applications, if necessary. A
detailed remediation contingency plan for core applications was in place in
early 1998 and a business resumption contingency plan for the core business
functions supported by these applications was completed in the second quarter of
1999. We continue to test and refine our Year 2000 contingency plans.
From a cost perspective, WSFS was already involved in upgrading its
technology infrastructure and therefore, many potential Year 2000 issues were
avoided by the replacement of old systems with new technology. As of September
30, 1999, WSFS has expended $3.0 million related to the Year 2000 issue. WSFS
anticipates spending an additional $225,000 in future periods. A large portion
of costs associated with Year 2000 issues will be met from existing resources
through a reprioritization of the technology department initiatives with the
remainder representing incremental costs.
WSFS believes the costs or the consequences of incomplete or untimely
resolution of its Year 2000 issues do not represent a known material event or
uncertainty that is reasonably likely to affect its future financial results, or
cause its reported financial information not to be necessarily indicative of
future operating results or future financial condition. However, if compliance
is not achieved in a timely manner by WSFS or any of its significant related
third-parties, be it a supplier of services or customer, the Year 2000 issue
could possibly have a material effect on the Company's results of operations and
financial position.
Successful and timely completion of the Year 2000 project is based on
management's best estimates, which were derived from numerous assumptions of
future events, which are inherently uncertain, including the availability of
certain resources, third party modification plans, and other factors. Many of
the factors that would guarantee Year 2000 success are beyond the control of
WSFS. These factors include availability of vendor compliant products, interface
system partner compliance, government activity and client readiness. Because of
the interconnectedness of the Year 2000 situation, WSFS cannot realistically
offer any certifications, representations or guarantees. Nevertheless, WSFS has
devoted substantial resources to the problem and describes its plan in this
corporate statement. WSFS' Year 2000 initiative is an ongoing process. The
information available in this document may be periodically updated and is
subject to change without notice. This statement about WSFS' Year 2000 readiness
is intended to supercede every statement that has been made previously Year 2000
readiness issues.
FORWARD LOOKING STATEMENTS
Within this discussion and analysis we have included certain "forward
looking statements" concerning the future operations of the Corporation. It is
management's desire to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. This statement is for the
express purpose of availing the Corporation of the protections of such safe
harbor with respect to all "forward looking statements" contained in our
financial statements. We have used "forward looking statements" to describe the
future plans and strategies including our expectations of the Corporation's
future financial results. Management's ability to predict results or the effect
of future plans and strategy is inherently uncertain. Factors that could affect
results include interest rate trends, competition, the general economic climate
in Delaware, mid-Atlantic region and the country as a whole, loan delinquency
rates, Year 2000 issues, and changes in federal and state regulation. These
factors should be considered in evaluating the "forward looking statements", and
undue reliance should not be placed on such statements.
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises primarily from interest rate risk
inherent in its lending, investing and funding activities. To that end,
management actively monitors and manages its interest rate risk exposure. One
measure, required to be performed by OTS-regulated institutions, is the test
specified by OTS Thrift Bulletin No. 13A, "Management of Interest Rate Risk,
Investment Securities and Derivative Activities." This test measures the impact
on net portfolio value of an immediate change in interest rates in 100 basis
point increments. Net portfolio value is defined as the net present value of
assets, liabilities, and off-balance sheet contracts. The chart below is the
estimated impact of immediate changes in interest rates on net interest margin
and net portfolio value at the specified levels at September 30, 1999 and 1998,
calculated in compliance with Thrift Bulletin No. 13A:
<TABLE>
<CAPTION>
September 30,
--------------------------------------------------------------------
1999 1998(1)
-------------------------------- --------------------------------
Change in Interest % Change in % Change in % Change in % Change in
Rate Net Interest Net Portfolio Net Portfolio Net Portfolio
(Basis Points) Margin (2) Value (3) Margin (2) Value (3)
-------------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
+300 0% -27% 2% -23%
+200 0 -19 2 -16
+100 0 -10 1 -9
-100 -1 11 -1 9
-200 -1 22 -3 19
-300 -2 34 -4 30
</TABLE>
(1) September 30, 1998 has been restated to reflect the interest-sensitive
nature of the operating lease portfolio
(2) This column represents the percentage difference between net interest
margin in a stable interest rate environment and net interest margin as
projected in the various rate increments.
(3) This column represents the percentage difference between net portfolio
value of the Company in a stable interest rate environment and the net
portfolio value as projected in the various rate increments.
The Company's primary objective in managing interest rate risk is to
minimize the adverse impact of changes in interest rates on the Company's net
interest income and capital, while maximizing the yield/cost spread on the
Company's asset/liability structure. The Company relies primarily on its
asset/liability structure to control interest rate risk.
<PAGE>
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) None.
(b) Report on Form 8-K, dated September 13, 1999, contained a press
release dated September 7, 1999, announcing the anticipated
entry into the Internet-only banking sector, through
everbank.com(TM).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WSFS FINANCIAL CORPORATION
Date: November 12, 1999 /s/ MARVIN N. SCHOENHALS
-------------------------------------------
Marvin N. Schoenhals
Chairman, President and
Chief Executive Officer
Date: November 12, 1999 /s/ MARK A. TURNER
-------------------------------------------
Mark A. Turner
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000828944
<NAME> WSFS FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 53,923
<INT-BEARING-DEPOSITS> 1,409
<FED-FUNDS-SOLD> 18,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 223,586
<INVESTMENTS-CARRYING> 273,466
<INVESTMENTS-MARKET> 0
<LOANS> 826,844
<ALLOWANCE> 23,542
<TOTAL-ASSETS> 1,700,905
<DEPOSITS> 909,278
<SHORT-TERM> 173,323
<LIABILITIES-OTHER> 27,199
<LONG-TERM> 500,000
0
0
<COMMON> 16,917
<OTHER-SE> 74,188
<TOTAL-LIABILITIES-AND-EQUITY> 1,700,905
<INTEREST-LOAN> 49,186
<INTEREST-INVEST> 24,910
<INTEREST-OTHER> 7,434
<INTEREST-TOTAL> 81,530
<INTEREST-DEPOSIT> 24,722
<INTEREST-EXPENSE> 52,711
<INTEREST-INCOME-NET> 28,819
<LOAN-LOSSES> 771
<SECURITIES-GAINS> (8)
<EXPENSE-OTHER> 31,026
<INCOME-PRETAX> 18,205
<INCOME-PRE-EXTRAORDINARY> 18,205
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,471
<EPS-BASIC> 1.19
<EPS-DILUTED> 1.18
<YIELD-ACTUAL> 7.86
<LOANS-NON> 6,747
<LOANS-PAST> 3,188
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 23,689
<CHARGE-OFFS> 1,471
<RECOVERIES> 554
<ALLOWANCE-CLOSE> 23,542
<ALLOWANCE-DOMESTIC> 23,542
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
