<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 March 31, 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 Identification No.)
incorporation or organization)
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 May 7, 1999:
Common Stock, par value $.01 per share 11,255,568
- -------------------------------------- --------------------
(Title of Class) (Shares Outstanding)
<PAGE>
WSFS FINANCIAL CORPORATION
FORM 10-Q
INDEX
PART I. Financial Information
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Financial Statements
--------------------
Consolidated Statement of Operations for the Three Months
Ended March 31, 1999 and 1998 (Unaudited).......................................... 3
Consolidated Statement of Condition as of March 31, 1999
(Unaudited) and December 31, 1998.................................................. 4
Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 1999 and 1998 (Unaudited)................................................ 5
Notes to the Consolidated Financial Statements for the Three
Months Ended March 31, 1999 and 1998 (Unaudited).................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................... 7
-------------------------
Item 3. Quantitative and Qualitative Disclosures About Market Risk ........................ 16
-----------------------------------------------------------
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders................................ 17
---------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K................................................... 17
--------------------------------
Signatures ................................................................................... 18
</TABLE>
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<PAGE>
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1999 1998
-------- -------
<S> <C> <C>
(Unaudited)
(Dollars in thousands, except per share data)
Interest income:
Interest and fees on loans...................................................... $ 16,327 $ 17,546
Interest on mortgage-backed securities.......................................... 8,012 5,884
Interest and dividends on investment securities ................................ 578 1,066
Other interest income .......................................................... 2,272 2,566
-------- ----------
27,189 27,062
-------- ----------
Interest expense:
Interest on deposits ........................................................... 8,038 7,829
Interest on Federal Home Loan Bank advances .................................... 6,499 5,649
Interest on federal funds purchased and securities sold
under agreements to repurchase................................................ 2,112 2,935
Interest on senior notes and trust preferred borrowings......................... 987 829
Interest on other borrowed funds................................................ 94 78
-------- ----------
17,730 17,320
Net interest income ............................................................ 9,459 9,742
Provision for loan losses ...................................................... 263 577
-------- ----------
Net interest income after provision for loan losses ............................ 9,196 9,165
-------- ----------
Other income:
Loan and lease servicing fees .................................................. 833 894
Rental income on operating leases, net ......................................... 3,372 2,880
Deposit service charges ........................................................ 1,211 984
Credit/debit card and ATM income................................................ 679 538
Securities gains ............................................................... 1 39
Other income ................................................................... 475 662
-------- ----------
6,571 5,997
-------- ----------
Other expenses:
Salaries, benefits and other compensation ...................................... 4,582 4,243
Equipment expense............................................................... 710 428
Data processing and operations expense ......................................... 1,335 1,261
Occupancy expense............................................................... 789 730
Marketing expense............................................................... 333 272
Professional fees............................................................... 353 415
Net costs of assets acquired through foreclosure ............................... 25 307
Other operating expense ........................................................ 1,706 1,518
-------- ----------
9,833 9,174
-------- ----------
Income before taxes ............................................................ 5,934 5,988
Income tax provision ........................................................... 1,543 1,557
-------- ----------
Net income ..................................................................... $ 4,391 $ 4,431
======== ==========
Earnings per share:
Basic...................................................................... $ .38 $ .36
Diluted.................................................................... .38 .35
Other comprehensive income, net of tax:
Net income ................................................................. $ 4,391 $ 4,431
Net unrealized holding losses on securities
available-for-sale arising during the period ............................ (508) (144)
Less: reclassification adjustment for gains
included in net income................................................... 1 39
-------- ----------
Comprehensive income ........................................................... $ 3,882 $ 4,248
======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
(Unaudited)
<S> <C> <C>
(Dollars in thousands)
Assets
Cash and due from banks......................................................... $ 50,274 $ 55,848
Federal funds sold and securities purchased under agreements to resell.......... 28,900 20,900
Interest-bearing deposits in other banks ....................................... 3,138 7,518
Investment securities held-to-maturity ......................................... 6,670 7,642
Investment securities available-for-sale ....................................... 30,078 30,219
Mortgage-backed securities held-to-maturity .................................... 299,149 265,858
Mortgage-backed securities available-for-sale .................................. 222,096 193,226
Investment in reverse mortgages, net ........................................... 31,495 31,293
Loans held-for-sale ............................................................ 2,375 3,084
Loans, net allowance for loan losses of $23,540 at March 31, 1999
and $23,689 at December 31, 1998 ............................................ 749,313 760,584
Vehicles under operating leases, net ........................................... 212,449 199,967
Stock in Federal Home Loan Bank of Pittsburgh, at cost.......................... 26,250 23,000
Assets acquired through foreclosure ............................................ 1,136 2,993
Premises and equipment ......................................................... 12,652 11,919
Accrued interest and other assets .............................................. 22,514 21,659
---------- ----------
Total assets.................................................................... $1,698,489 $1,635,710
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing demand................................................... $ 108,490 $ 108,418
Money market and interest-bearing demand..................................... 72,409 68,208
Savings...................................................................... 229,280 218,334
Time......................................................................... 316,069 333,419
---------- ----------
Total retail deposits..................................................... 726,248 728,379
Jumbo certificates of deposit................................................ 74,368 65,453
Brokered certificates of deposit............................................. 114,374 64,468
---------- ----------
Total deposits............................................................ 914,990 858,300
Federal funds purchased and securities sold under agreements to repurchase ..... 135,000 153,505
Federal Home Loan Bank advances ................................................ 475,000 460,000
Senior notes and trust preferred borrowings..................................... 50,000 50,000
Other borrowed funds............................................................ 8,853 8,904
Accrued expenses and other liabilities ......................................... 26,880 19,249
---------- ----------
Total liabilities .............................................................. 1,610,723 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 14,727,557 at
March 31, 1999 and 14,695,688 at December 31, 1998.......................... 147 147
Capital in excess of par........................................................ 57,797 57,696
Accumulated other comprehensive income.......................................... (273) 236
Retained earnings .............................................................. 68,702 64,657
Treasury stock at cost, 3,288,269 shares at March 31, 1999 and 3,192,769 at
December 31, 1998........................................................... (38,607) (36,984)
---------- ----------
Total stockholders' equity ..................................................... 87,766 85,752
---------- ----------
Total liabilities and stockholders' equity ..................................... $1,698,489 $1,635,710
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
-------- ----
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Operating activities:
Net income ............................................................. $ 4,391 $ 4,431
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan, lease and residual value losses .................. 767 743
Depreciation, accretion and amortization ............................. 572 40
Decrease (increase) in accrued interest receivable and other assets... (1,081) 1,017
Origination of loans held-for-sale.................................... (10,496) (12,304)
Proceeds from sales of loans held-for-sale............................ 11,209 10,557
Increase in accrued interest payable and other liabilities............ 7,576 4,308
Increase in reverse mortgage capitalized interest, net ............... (1,491) (1,506)
Other, net ........................................................... 78 (261)
-------- ---------
Net cash provided by operating activities.................................. $ 11,525 $ 7,025
-------- ---------
Investing activities:
Net decrease in interest-bearing deposits in other banks ............... 4,380 8,091
Maturities of investment securities .................................... 1,003 26,766
Sales of investment securities available-for-sale ...................... - 20,059
Purchases of investment securities held-to-maturity .................... - (10,000)
Repayments of mortgage-backed securities held-to-maturity .............. 41,471 33,745
Repayments of mortgage-backed securities available-for-sale ............ 19,866 7,078
Purchases of mortgage-backed securities held-to-maturity................ (74,786) (44,956)
Purchases of mortgage-backed securities available-for-sale.............. (49,385) (54,285)
Repayments of reverse mortgages ........................................ 3,644 3,944
Disbursements for reverse mortgages .................................... (2,310) (2,559)
Sales of loans.......................................................... - 11,483
Purchase of loans ...................................................... (3,245) (2,059)
Net decrease in loans .................................................. 14,040 24,936
Net increase in operating leases........................................ (16,195) (1,828)
Net increase in stock of Federal Home Loan Bank of Pittsburgh .......... (3,250) (248)
Sales of assets acquired through foreclosure, net....................... 5,853 3,285
Premises and equipment, net............................................. (1,300) (921)
-------- ---------
Net cash provided by (used for ) for investing activities............... (60,214) 22,531
-------- ---------
Financing activities:
Net increase in demand and savings deposits ........................... 15,168 11,165
Net increase (decrease) in time deposits ............................... 41,394 (4,827)
Receipts from FHLB borrowings .......................................... 65,000 469,000
Repayments of FHLB borrowings........................................... (50,000) (459,000)
Receipts from reverse repurchase agreements ............................ 17,270 69,837
Repayments of reverse repurchase agreements ............................ (35,775) (75,606)
Dividends paid on common stock.......................................... (346) -
Issuance of common stock ............................................... 27 -
Purchase treasury stock ................................................ (1,623) -
-------- ---------
Net cash provided by financing activities................................... 51,115 10,569
-------- ---------
Increase in cash and cash equivalents ...................................... 2,426 40,125
Cash and cash equivalents at beginning of period ........................... 76,748 52,746
-------- ---------
Cash and cash equivalents at end of period ................................. $ 79,174 $ 92,871
======== =========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest during the year ..................................... $ 15,136 $ 14,680
Cash paid (refunded) for income taxes....................................... 437 (738)
Loans and leases transferred to assets acquired through foreclosure ........ 3,382 2,228
Net change in unrealized gains (losses) on securities available-for-sale, net of tax (509) (183)
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
WSFS FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 debt 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 March 31, 1999, the
consolidated statement of operations for the three months ended March 31, 1999
and 1998 and the consolidated statement of cash flows for the three months ended
March 31, 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 March 31, 1999 presentation. The
results of operations for the three month period ending March 31, 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>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
<S> <C> <C>
Numerator:
Net income.............................................................. $ 4,391 $ 4,431
======== ========
Denominator:
Denominator for basic earnings per share - weighted average shares ..... 11,467 12,463
Effect of dilutive securities:
Employee stock options ............................................... 97 204
-------- --------
Denominator for diluted earnings per share - adjusted weighted average
shares and assumed exercise of stock options.......................... 11,564 12,667
======== ========
Basic earnings per share ................................................... $ .38 $ .36
======== ========
Diluted earnings per share ................................................. $ .38 $ .35
======== ========
</TABLE>
-6-
<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 $62.8 million during the first three months of 1999.
Asset growth included increases of $62.2 million in mortgage-backed securities
and $12.5 million in vehicles under operating leases. The increase in
mortgage-backed securities reflect the purchase of $124.2 million in
collateralized mortgage obligations, offset in part by principal repayments.
Asset growth was partially offset by a decrease of $11.3 million in net loans.
This decline reflects a $22.3 million decrease in commercial mortgages partially
offset by a $10.1 million increase in residential mortgages.
Total liabilities increased $60.8 million between December 31, 1998 and
March 31, 1999. During the first quarter, total deposits grew by $56.7 million,
the result of the influx of jumbo certificates of deposit and the acquisition of
$49.9 million in brokered deposits. Interest credited to deposits totaled $4.4
million for a net deposit growth of $52.3 million.
Capital Resources
Stockholders' equity increased $2.0 million between December 31, 1998 and
March 31, 1999. This increase reflects net income of $4.4 million for the
quarter partially offset by a $508,000 increase in net unrealized holding losses
on securities available-for-sale. In addition, treasury stock increased $1.6
million as a result of the purchase of 100,000 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 March 31, 1999, the Corporation held in its
treasury 3,288,269 shares of its common stock at a cost of $38.6 million.
-7-
<PAGE>
A table presenting the Bank's consolidated capital position relative to the
minimum regulatory requirements as of March 31, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
To be Well-capitalized
Consolidated For Capital Under Prompt Corrective
Bank Capital Adequacy Purposes Action Provisions
----------------------- ------------------------ ------------------------
Amount Percentage Amount Percentage Assets Percentage
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk-Weighted Assets)......... $128,372 12.20% $84,166 8.00% $105,207 10.00%
Core Capital (to Adjusted
Tangible Assets) ................. 120,762 7.12 67,848 4.00 84,810 5.00
Tangible Capital (to Tangible
Assets) .......................... 120,446 7.10 25,438 1.50 N/A N/A
Tier 1 Capital (to Risk-Weighted
Assets) .......................... 120,762 11.48 N/A N/A 63,124 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 March 31, 1999 the Bank is
classified as a "well-capitalized" institution and is in compliance with all
regulatory capital requirements. 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 March 31, 1999, the Bank's liquidity ratio
was 7.1% 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.
-8-
<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>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Nonaccruing loans:
Commercial .............................................. $ 2,384 $ 2,182
Consumer ................................................ 466 381
Commercial mortgages .................................... 2,268 2,383
Residential mortgages ................................... 3,449 3,068
Construction ............................................ - -
---------- -----------
Total nonaccruing loans ...................................... 8,567 8,014
Nonperforming investments in real estate ..................... 76 76
Assets acquired through foreclosure .......................... 1,136 2,993
---------- -----------
Total nonperforming assets ................................... $ 9,779 $ 11,083
========== ===========
Restructured loans ........................................... $ - $ -
========== ===========
Past due loans:
Residential mortgages ................................... $ 78 $ 247
Commercial and commercial mortgages ..................... 2,255 2,654
Consumer ................................................ 102 86
---------- -----------
Total past due loans ......................................... $ 2,435 $ 2,987
========== ===========
Ratios:
Nonperforming loans/leases to total
loans/leases (1) ..................................... .87% .81%
Allowance for loan/lease losses to total gross
Loans/leases (1)...................................... 2.49 2.49
Nonperforming assets to total assets .................... .58 .68
Loan loss/lease loss allowance to nonaccruing
loans/leases (2)...................................... 287.72 307.97
Loan/lease and foreclosed asset allowance to total
Nonperforming assets (2) .............................. 254.72 225.05
</TABLE>
(1) Total loans exclude loans held for sale.
(2) The applicable allowance represents general valuation allowances only.
Nonperforming assets decreased $1.3 million between March 31, 1999 and
December 31,1998. This decrease resulted primarily from a $1.9 million decline
in assets acquired through foreclosure of which, $1.3 million related to a
commercial property. This was offset in part by an increase of $553,000 in
nonaccruing loans particularly residential mortgages and commercial loans. An
analysis of the change in the balance of nonperforming assets is presented on
the following page.
-9-
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended Year Ended
March 31, December 31,
1999 1998
------------- -----------
(In Thousands)
<S> <C> <C>
Beginning balance......................................... $ 11,083 $ 13,892
Additions ........................................... 5,650 18,809
Collections ......................................... (6,348) (17,029)
Transfers to accrual/restructured status ............ (434) (2,880)
Provisions, charge-offs, other adjustments........... (172) (1,709)
---------- -----------
Ending balance ........................................... $ 9,779 $ 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 which was 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 rate-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 March
31, 1999, interest-earning assets exceeded interest-bearing liabilities that
mature within one year (interest-sensitivity gap) by $49.1 million. The
Corporation's interest-sensitive assets as a percentage of interest-sensitive
liabilities within the one-year window increased to 106.2% at March 31, 1999
compared to 97.6% at December 31, 1998. Likewise, the one-year
interest-sensitive gap as a percentage of total assets increased to a positive
2.89% 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 MONTHS ENDED MARCH 31, 1999 AND 1998
Results of Operations
The Corporation reported net income of $4.4 million, or $.38 per share
(diluted), for the first three months of 1999, compared to $4.4 million or $.35
per share (diluted), for the same quarter last year. The improvement in earnings
per share was the result of the stock repurchase program. At March 31, 1999. the
Corporation held in its Treasury 3.3 million shares, compared with 2.2 million
shares at March 31, 1998.
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.
-10-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------------------------------------
1999 1998
--------------------------------------- ------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate (1)
------- -------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans (2) (3):
Real estate loans (4)............ $ 523,127 $ 10,710 8.19% $ 524,017 $ 11,848 9.04%
Commercial loans................. 93,371 1,665 8.34 89,191 1,780 9.36
Consumer loans................... 165,394 3,914 9.60 160,139 3,876 9.82
----------- -------- ----------- ---------
Total loans...................... 781,892 16,289 8.48 773,347 17,504 9.21
Mortgage-backed securities (5)........ 506,673 8,012 6.33 354,280 5,884 6.64
Loans held for sale (3)............... 2,163 38 7.03 1,901 42 8.84
Investment securities (5)............. 37,085 578 6.23 66,810 1,066 6.38
Other interest-earning assets ........ 80,581 2,272 11.28 98,506 2,566 10.42
----------- -------- ----------- ---------
Total interest-earning assets.... 1,408,394 27,189 7.80 1,294,844 27,062 8.46
-------- ---------
Allowance for loan losses............. (23,648) (24,845)
Cash and due from banks............... 51,286 21,565
Vehicles under operating lease, net .. 206,517 173,468
Other noninterest-earning assets...... 36,640 32,978
----------- -----------
Total assets..................... $ 1,679,189 $ 1,498,010
=========== ===========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand................. $ 66,624 364 2.22 $ 59,695 381 2.59
Savings.......................... 219,475 1,611 2.98 172,411 1,304 3.07
Retail time deposits ............ 326,826 3,916 4.86 345,154 4,614 5.42
Jumbo certificates of deposit ... 77,844 1,015 5.29 33,361 469 5.70
Brokered certificates of deposits 71,400 1,132 6.43 64,384 1,061 6.68
----------- -------- ----------- ---------
Total interest-bearing deposits 762,169 8,038 4.28 675,005 7,829 4.70
FHLB of Pittsburgh advances........... 498,500 6,499 5.29 403,055 5,649 5.68
Senior notes and trust preferred
borrowings......................... 50,000 987 7.90 29,100 829 11.39
Other borrowed funds.................. 159,996 2,206 5.52 206,323 3,013 5.84
----------- -------- ----------- ---------
Total interest-bearing liabilities 1,470,665 17,730 4.82 1,313,483 17,320 5.27
-------- ---------
Noninterest-bearing demand deposits... 101,430 77,764
Other noninterest-bearing liabilities. 19,448 16,650
Stockholders' equity.................. 87,646 90,113
----------- -----------
Total liabilities and stockholders'
equity......................... $ 1,679,189 $ 1,498,010
=========== ===========
Deficit of interest-earning assets over
interest-bearing liabilities..... $ (62,271) $ (18,639)
=========== ===========
Net interest and dividend income...... $ 9,459 $ 9,742
========= =========
Interest rate spread.................. 2.98% 3.19%
===== =====
Interest rate margin.................. 2.77% 3.10%
===== =====
Net interest and dividend income to
total average assets............. 2.32% 2.68%
===== =====
</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.
-11-
<PAGE>
Net interest income decreased $283,000 between the three months ended March
31, 1999 and 1998. Total interest income increased $127,000, between 1999 and
1998 primarily due to the increase in mortgage-backed securities offset by the
decline in interest rates. Investment in mortgage-backed securities increased on
average by $152.4 million from the previous period. In addition, total average
loans increased by $8.5 million between 1999 and 1998, however the declining
interest rate environment reduced the yield on loans by 73 basis points. The
yield on mortgage-backed securities declined from 6.64% to 6.33% over the same
period. Total interest expense increased $410,000 between March 31, 1999 and
1998. The increase is attributed to growth in deposits and increased borrowings.
Average interest-bearing deposits increased $87.2 million between 1999 and 1998,
while average borrowings increased $70.0 million. The increase in borrowings
included a $20.9 million increase due to the issuance of $50.0 million of trust
preferred securities at the end of 1998. Partially offsetting the increase in
volume is the decline in interest rates during 1999 The yield on
interest-bearing deposits was reduced by 42 basis points to 4.28%from 4.70%
between March 31, 1999 and 1998. The yield on total borrowings, including trust
preferred, declined 48 basis points to 5.47% from 5.95% over the same period.
Provision for Loan Losses
The following table represents a summary of the changes in the allowance
for loan losses during the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, 1999 December 31, 1998
---------------------- -----------------
(Dollars in Thousands)
<S> <C> <C>
Beginning balance ............................................ $23,689 $24,850
Provision for loan losses .................................... 263 1,080
Charge-offs:
Residential real estate ................................. 39 210
Commercial real estate (1) .............................. 183 608
Commercial............................................... - 648
Consumer ................................................ 257 1,153
------- -------
Total charge-offs..................................... 479 2,619
------- -------
Recoveries:
Residential real estate ................................. - 12
Commercial real estate (1) .............................. 11 123
Commercial .............................................. 5 74
Consumer (2)............................................. 51 169
------- -------
Total charge-offs .................................... 67 378
------- -------
Net charge-offs .............................................. 412 2,241
------- -------
Ending balance ............................................... $23,540 $23,689
======= =======
Net charge-offs to average gross loans outstanding, net
of unearned income (3)................................... .16% .29%
======= =======
</TABLE>
(1) Includes commercial mortgages and construction loans.
(2) Includes finance-type leases.
(3) Ratio for the three months ended March 31, 1999 is annualized.
The provision for loan losses decreased by $314,000 between the three
months ended March 31, 1999 and 1998. These changes in the provision reflect
management's continuing review of the loan portfolio.
-12-
<PAGE>
Provision for Lease Losses
The following table represents a summary of the changes in the allowance
for lease credit losses during the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, 1999 December 31, 1998
---------------- -----------------
(Dollars in Thousands)
<S> <C> <C>
Beginning balance ............................................ $ 992 $ 1,097
Provision for losses on vehicles under operating leases....... 216 547
Charge-offs................................................... 166 909
Recoveries ................................................... 67 257
--------- ----------
Net charge-offs .............................................. 99 652
--------- ----------
Ending balance ............................................... $ 1,109 $ 992
========= ==========
</TABLE>
Other Income
Noninterest income increased $574,000, or 10% between the three months
ended March 31, 1998 and 1999. This increase resulted primarily from net rental
income on operating leases, which increased $492,000 between comparable
quarters. The growth in rental income was attributable to a 12% increase in
vehicles under operating leases between March 31, 1998 and 1999. In addition,
deposit service charges increased $227,000 during the quarter ended March 31,
1998 in comparison to the quarter ended March 31, 1998, primarily due to
increased fees along with the addition of five new branches. Credit/debit card
and ATM fee income increased $141,000 between the first quarter of 1999 and 1998
due to expansion of the Bank's ATM network and increased usage of the Company's
debit card. Partially offsetting these increases was a decrease in the other
category of $187,000 between comparable quarters. This category for the first
quarter of 1998 included a $368,000 one-time gain on sale of $10.5 million in
mortgage loans, originated to comply with the Community Reinvestment Act. The
decline period over period in the other category was partially offset by an
increase in mutual fund sales commissions.
Other Expenses
Noninterest expenses increased $659,000 between the quarters ending March
31, 1998 and 1999. The increases which occurred in salaries, equipment, data
processing and occupancy were primarily associated with new retail banking
offices, ATMs and investments in technology. WSFS opened five retail banking
offices in the last year for a total of 22. In addition, WSFS currently has 122
owned and operated ATMs, 22 more than this time last year. Partially offsetting
these increases was a $282,000 decline in net costs of assets acquired through
foreclosure, the result of lower foreclosed 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 the tax consequences of "temporary differences". The Corporation
recorded a provision for income taxes during the first quarter of 1999 of $1.5
million compared to $1.6 million for the same period in 1998. The effective tax
rate for the first quarter of 1999 and 1998 was 26% for each period.
The Corporation analyzes its projections of taxable income on an ongoing
basis and makes adjustments to its provision for income taxes accordingly.
-13-
<PAGE>
ACCOUNTING DEVELOPMENTS
In June 1998 the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". This
statement 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 the 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. This Statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Earlier adoption is permitted. 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.
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. Our
Year 2000 Project Plan is in place and is progressing on schedule. A full year
of intensive testing is scheduled during 1999. As of March 31, 1999 all of our
internally maintained mission-critical systems have been renovated, tested, and
installed in production, and renovation of our significant impact systems is
substantially complete and testing is well underway. We have also 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.
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 installed system fixes for
all of its major customer applications including Year 2000 compliant versions of
its software. In addition, WSFS has replaced or upgraded all of its personal
computers and tested this hardware for Year 2000 compliance.
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.
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.
-14-
<PAGE>
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 is currently developing 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.
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 March 31,
1999, WSFS has incurred expenses of $2.4 million related to the Year 2000 issue.
WSFS anticipates spending an additional $500,000 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 report and financial statements 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 and annual report. 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, the mid-Atlantic region
and the country as a whole, loan delinquency rates, and changes in federal and
state regulation, among others. These factors should be considered in evaluating
the "forward looking statements", and undue reliance should not be placed on
such statements.
-15-
<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 March 31, 1999 and 1998,
calculated in compliance with Thrift Bulletin No. 13A:
<TABLE>
<CAPTION>
March 31,
---------------------------------------------------------------------
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> <C>
+300 3% -25% 3% -28%
+200 2 -18 2 -19
+100 1 -9 1 -10
-100 -2 10 -1 11
-200 -3 21 -3 22
-300 -5 33 -5 35
</TABLE>
(1) March 31, 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.
-16-
<PAGE>
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Corporation's Annual Stockholder's Meeting held on April 22,
1999, all of the nominees for director proposed by the Corporation were elected.
The votes cast for each such nominee were as follows:
For Withheld
--------- --------
Charles G. Cheleden 9,462,772 95,938
Joseph R. Julian 9,464,270 94,440
Dale E. Wolf 9,463,336 95,374
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) Report on Form 8-K, dated February 2, contained a press
release announcing that the Board of Directors as authorized
the repurchase of up to 1,150,000 shares, or approximately
10% of the Company's current outstanding shares of common
stock from time to time in the open market or privately
negotiated transactions.
-17-
<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: May 12, 1999 /s/ MARVIN N. SCHOENHALS
-----------------------------------------------
Marvin N. Schoenhals
Chairman, President and Chief Executive Officer
Date: May 12, 1999 /s/ MARK A. TURNER
-----------------------------------------------
Mark A. Turner
Executive Vice President and
Chief Financial Officer
-18-
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000828944
<NAME> WSFS FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 50,274
<INT-BEARING-DEPOSITS> 3,138
<FED-FUNDS-SOLD> 28,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 252,174
<INVESTMENTS-CARRYING> 305,819
<INVESTMENTS-MARKET> 0
<LOANS> 775,228
<ALLOWANCE> 23,540
<TOTAL-ASSETS> 1,698,489
<DEPOSITS> 914,990
<SHORT-TERM> 143,853
<LIABILITIES-OTHER> 26,880
<LONG-TERM> 525,000
0
0
<COMMON> 19,337
<OTHER-SE> 68,429
<TOTAL-LIABILITIES-AND-EQUITY> 1,698,489
<INTEREST-LOAN> 16,327
<INTEREST-INVEST> 8,590
<INTEREST-OTHER> 2,272
<INTEREST-TOTAL> 27,189
<INTEREST-DEPOSIT> 8,038
<INTEREST-EXPENSE> 17,730
<INTEREST-INCOME-NET> 9,459
<LOAN-LOSSES> 263
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 9,833
<INCOME-PRETAX> 5,934
<INCOME-PRE-EXTRAORDINARY> 5,934
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,391
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.38
<YIELD-ACTUAL> 7.80
<LOANS-NON> 8,567
<LOANS-PAST> 2,435
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 23,689
<CHARGE-OFFS> 479
<RECOVERIES> 67
<ALLOWANCE-CLOSE> 23,540
<ALLOWANCE-DOMESTIC> 23,540
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
