<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, 2000
----------------------------------------
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 5, 2000:
Common Stock, par value $.01 per share 10,722,744
- -------------------------------------- --------------------
(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, 2000 and 1999 (Unaudited).......................................... 3
Consolidated Statement of Condition as of March 31, 2000
(Unaudited) and December 31, 1999.................................................. 4
Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 2000 and 1999 (Unaudited)................................................ 5
Notes to the Consolidated Financial Statements for the Three
Months Ended March 31, 2000 and 1999 (Unaudited)................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................... 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................ 19
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders................................ 20
Item 6. Exhibits and Reports on Form 8-K................................................... 20
Signatures ................................................................................... 21
</TABLE>
-2-
<PAGE>
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------
2000 1999
---- ----
(Unaudited)
(Dollars in Thousands, except per share data)
<S> <C> <C>
Interest income:
Interest and fees on loans........................................ $ 19,135 $ 16,327
Interest on mortgage-backed securities............................ 6,620 8,012
Interest and dividends on investment securities................... 705 578
Other interest income............................................. 8,477 2,272
----------- ----------
34,937 27,189
----------- ----------
Interest expense:
Interest on deposits.............................................. 8,435 8,038
Interest on Federal Home Loan Bank advances....................... 7,287 6,499
Interest on federal funds purchased and securities
sold under agreement to repurchase.............................. 2,128 2,112
Interest on trust preferred borrowings............................ 1,143 987
Interest on other borrowed funds.................................. 190 94
----------- ----------
19,183 17,730
----------- ----------
Net interest income.................................................... 15,754 9,459
Provision for loan losses.............................................. 228 263
----------- ----------
Net interest income after provision for loan losses.................... 15,526 9,196
----------- ----------
Other income:
Loan and lease servicing fees .................................... 819 833
Rental income on operating leases, net ........................... 3,322 3,372
Deposit service charges........................................... 1,471 1,211
Credit/debit card and ATM income ................................. 1,174 679
Securities gains (losses) ........................................ (2,466) 1
Other income...................................................... 378 475
----------- ----------
4,698 6,571
----------- ----------
Other expenses:
Salaries, benefits and other compensation......................... 6,206 4,582
Equipment expense................................................. 985 710
Data processing and operations expenses........................... 1,740 1,335
Occupancy expense................................................. 950 789
Marketing expense................................................. 777 333
Professional fees................................................. 659 353
Net costs of assets acquired through foreclosure.................. 146 25
Other operating expense........................................... 2,410 1,706
----------- ----------
13,873 9,833
----------- ----------
Income before taxes, cumulative effect of change in
accounting principle and minority interest.......................... 6,351 5,934
Less minority interest................................................. (1,231) -
----------- ----------
Income before taxes and cumulative effect of change in accounting
principle ........................................................... 7,582 5,934
Income tax provision................................................... 2,188 1,543
----------- ----------
Income before cumulative effect of change in accounting principle...... 5,394 4,391
----------- ----------
Cumulative effect of change in accounting principle
net of $837,000 in income tax....................................... (1,256) -
----------- ----------
Net income............................................................. $ 4,138 $ 4,391
=========== ==========
Basic earnings per share:
Income before cumulative effect of change in accounting principle.. $ 0.48 $ 0.38
Cumulative effective of change in accounting principle........... (0.11) -
----------- ----------
Net income ............................................................ $ 0.37 $ 0.38
=========== ==========
Diluted earnings per share:
Income before cumulative effect of change in accounting principle $ 0.48 $ 0.38
Cumulative effective of change in accounting principle............ (0.11) -
----------- ----------
Net income ............................................................ $ 0.37 $ 0.38
=========== ==========
</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,
2000 1999
-------- -----------
(Unaudited)
(Dollars in Thousands)
<S> <C> <C>
Assets
Cash and due from banks................................................ $ 58,505 $ 59,166
Federal funds sold and securities purchased under agreements to resell. 4,500 -
Interest-bearing deposits in other banks............................... 5,482 8,026
Investment securities held-to-maturity................................. 12,600 8,612
Investment securities available-for-sale............................... 28,985 28,861
Mortgage-backed securities held-to-maturity............................ 123,054 258,825
Mortgage-backed securities available-for-sale.......................... 185,238 188,924
Investment in reverse mortgages, net................................... 32,808 28,103
Loans held-for-sale.................................................... 353 24,558
Loans, net of allowance for loan losses of $23,427 at March 31, 2000
and $23,024 at December 31, 1999..................................... 895,608 856,627
Vehicles under operating leases, net .................................. 216,302 220,209
Stock in Federal Home Loan Bank of Pittsburgh, at cost................. 28,500 28,500
Assets acquired through foreclosure.................................... 1,356 1,061
Premises and equipment................................................. 14,980 14,621
Accrued interest and other assets...................................... 31,544 27,727
---------- ----------
Total assets........................................................... $1,639,815 $1,753,820
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing demand......................................... $ 129,528 $ 119,754
Money market and interest-bearing demand........................... 105,437 79,321
Savings............................................................ 265,712 258,854
Time............................................................... 267,913 278,051
---------- ----------
Total retail deposits............................................ 768,590 735,980
Jumbo certificates of deposit...................................... 35,168 24,645
Brokered certificates of deposit................................... 139,544 149,465
---------- ----------
Total deposits................................................... 943,302 910,090
Federal funds purchased and securities sold under agreements to
repurchase ........................................................ 113,941 143,941
Federal Home Loan Bank advances........................................ 390,000 515,000
Trust preferred borrowings............................................. 50,000 50,000
Other borrowed funds................................................... 19,452 13,524
Accrued expenses and other liabilities................................. 22,850 20,006
---------- ----------
Total liabilities...................................................... 1,539,545 1,652,561
---------- ----------
Minority Interest...................................................... 4,565 5,106
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 March 31, 2000 and 14,797,513 at December 31, 1999... 148 148
Capital in excess of par .............................................. 58,185 58,185
Accumulated other comprehensive loss .................................. (2,578) (3,265)
Retained earnings ..................................................... 86,801 83,000
Treasury stock at cost, 3,954,769 shares at March 31, 2000 and
3,528,269 shares at December 31, 1999 ............................. (46,851) (41,915)
---------- ----------
Total stockholders' equity............................................. 95,705 96,153
---------- ----------
Total liabilities and stockholders' equity............................. $1,639,815 $1,753,820
========== ==========
</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,
--------------------------------------
2000 1999
----------- ----------
(Unaudited)
(Dollars in Thousands)
<S> <C> <C>
Operating activities:
Net income ............................................................. $ 4,138 $ 4,391
Adjustments to reconcile net income to cash provided by operating
activities:
Provision for loan, lease and residual value losses .................. 1,219 767
Depreciation, accretion and amortization ............................. 921 572
Increase in accrued interest receivable and other assets.............. (97) (1,081)
Origination of loans held-for-sale.................................... (45,543) (10,496)
Proceeds from sales of loans held-for-sale............................ 70,611 11,209
Increase in accrued interest payable and other liabilities............ 2,810 7,576
Increase in reverse mortgage capitalized interest, net ............... (7,718) (1,491)
Minority interest in net income....................................... (1,231) -
Other, net ........................................................... 207 78
---------- ----------
Net cash provided by operating activities................................... 25,317 11,525
---------- ----------
Investing activities:
Net decrease in interest-bearing deposits in other banks ............... 2,544 4,380
Maturities of investment securities .................................... 3,293 1,003
Sales of investment securities available-for-sale ...................... 10,618 -
Purchases of investment securities held-to-maturity .................... (5,952) -
Purchases of investment securities available-for-sale................... (12,554) -
Sales of mortgage-backed securities available-for-sale.................. 150,605 -
Repayments of mortgage-backed securities held-to-maturity .............. 10,180 41,471
Repayments of mortgage-backed securities available-for-sale ............ 4,601 19,866
Purchases of mortgage-backed securities held-to-maturity................ - (74,786)
Purchases of mortgage-backed securities available-for-sale.............. (27,347) (49,385)
Repayments of reverse mortgages ........................................ 5,104 3,644
Disbursements for reverse mortgages .................................... (2,065) (2,310)
Purchase of loans ...................................................... (19,445) (3,245)
Net (increase) decrease in loans ....................................... (21,185) 14,040
Net increase in operating leases........................................ (5,328) (16,195)
Net increase in stock of Federal Home Loan Bank of Pittsburgh .......... - (3,250)
Sales of assets acquired through foreclosure, net....................... 7,205 5,853
Premises and equipment, net............................................. (805) (1,300)
---------- ----------
Net cash provided by (used for) investing activities........................ 99,469 (60,214)
---------- ----------
Financing activities:
Net increase in demand and savings deposits............................. 48,376 15,168
Net increase (decrease) in time deposits ............................... (9,656) 41,394
Receipts from FHLB borrowings .......................................... 195,000 65,000
Repayments of FHLB borrowings........................................... (320,000) (50,000)
Receipts from reverse repurchase agreements ............................ 20,000 17,270
Repayments of reverse repurchase agreements ............................ (45,000) (35,775)
Repayments of Federal funds purchased.................................. (5,000) -
Repayments of other borrowings.......................................... (25) -
Dividends paid on common stock.......................................... (338) (346)
Issuance of common stock ............................................... - 27
Purchase of treasury stock, net of reissuance........................... (4,936) (1,623)
Minority Interest....................................................... 632 -
---------- ----------
Net cash provided by (used for) financing activities........................ (120,947) 51,115
---------- ----------
Increase in cash and cash equivalents ...................................... 3,839 2,426
Cash and cash equivalents at beginning of period ........................... 59,166 76,748
---------- ----------
Cash and cash equivalents at end of period ................................. $ 63,005 $ 79,174
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest during the quarter .................................. $ 16,611 $ 15,136
Cash paid (refunded) for income taxes....................................... (915) 437
Loans and leases transferred to assets acquired through foreclosure ........ 8,603 3,382
Net change in accumulated other comprehensive income........................ 687 (509)
</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, 2000 AND 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), 838
Investment Group, Inc. and Star States Development Company, (SSDC) as well as
its non-wholly-owned, but majority controlled subsidiaries: CustomerOne
Financial Network, Inc. and Wilmington National Finance, Inc., formerly
Community Credit Corporation.
The consolidated statement of condition as of March 31, 2000, the
consolidated statement of operations for the three months ended March 31, 2000
and 1999 and the consolidated statement of cash flows for the three months ended
March 31, 2000 and 1999 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, 2000 presentation. The
results of operations for the three month period ended March 31, 2000 are not
necessarily indicative of the expected results for the full year ended December
31, 2000. The accompanying unaudited financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Corporation's 1999 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 ended March 31,
------------------------------------
2000 1999
---- ----
<S> <C> <C>
Numerator:
Income before cumulative effect of change in accounting principle... $5,394 $4,391
Cumulative effect of change in accounting principle................. (1,256) -
------ ------
Net income ....................................................... $4,138 $4,391
====== ======
Denominator:
Denominator for basic earnings per share -
weighted average shares ......................................... 11,133 11,467
Effect of dilutive securities:
Employee stock options ......................................... 16 97
------ ------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed exercise of stock options ................................ 11,149 11,564
====== ======
Basic earnings per share:
Income before cumulative effect of change in accounting principle... $ 0.48 $ 0.38
Cumulative effective of change in accounting principle............ (0.11) -
------ ------
Net income ....................................................... $ 0.37 $ 0.38
====== ======
Diluted earnings per share:
Income before cumulative effect of change in accounting principle $ 0.48 $ 0.38
Cumulative effective of change in accounting principle............. (0.11) -
------ ------
Net income ....................................................... $ 0.37 $ 0.38
====== ======
</TABLE>
-6-
<PAGE>
3. INVESTMENTS IN NON-WHOLLY OWNED SUBSIDIARIES
In August 1999, WSFS Financial Corporation invested $5.5 million in
CustomerOne Financial Network, Inc. (C1FN), a St. Louis, Missouri based
corporation formed in 1998 for the express purpose of providing
direct-to-marketing, servicing, internet development and technology management
for "branchless" financial services. At March 31, 2000, WSFS is the single
largest shareholder in C1FN, has majority control through a voting trust and
shares in 42% of the operating results. In addition, WSFS received warrants for
the purchase of an additional 20% ownership of C1FN, as well as the opportunity
and under certain circumstances the obligation to invest an additional $5.4
million in the year 2000, at current offered ownership prices. As a result of
this investment, C1FN's internet-only banking structure will become part of
everbank.com(TM), a division of WSFS. C1FN and WSFS will manage the operations
of everbank.com(TM) . Everbank.com(TM) began marketing internet-only banking to
a national clientele in November of 1999.
Additionally, in November 1999, the Corporation expanded the home
equity lending business of Community Credit Corporation (CCC) which initially
started operations in 1994. CCC was renamed Wilmington National Finance, Inc.
(WNFI) and WSFS retained a 51% ownership with the remainder held by WNFI's new
executives retained to lead the expansion of WNFI. WSFS also has warrants to
obtain an additional 15% ownership in WNFI. Both C1FN and WNFI are consolidated
into the financial statements of WSFS Financial Corporation. The portion of
equity and operating results attributable to investors in C1FN and WNFI, other
than WSFS, are reported as minority interest. During the quarter, WNFI's
accumulated deficit exceeded the common equity. Therefore, as a result of WSFS'
preferred stock investment, WSFS began recognizing 100% of the net loss. Once
this startup company begins recognizing income, WSFS will post 100% of the
earnings to the point of recovering recognized losses in excess of 51%.
4. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
On January 1, 2000, the Corporation adopted Statement of Financial
Accounting Standards No. 133 (SFAS 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, 2000. The Corporation has elected earlier adoption as
permitted under this standard.
The Corporation's only derivative that requires separate accounting under
SFAS 133 is an interest-rate cap with a notional amount of $50 million which
limits 3-month LIBOR to 6% for ten years ending December 1, 2008. The cap is
being used to hedge the cash flows of $50 million in trust preferred floating
debt. The cap was recorded at the date of purchase in other assets, at a cost of
$2.4 million. The fair market value (FMV), which at inception is equal to the
cost, is broken into two components: the intrinsic value and the time value of
the option. The cap will be marked-to-market quarterly, with changes in the
intrinsic value of the cap, net of tax, included in a separate component of
other comprehensive income and changes in the time value of the option included
in interest expense as required under SFAS 133. In addition, the ineffective
portion, if any, will be expensed in the period in which ineffectiveness is
determined. It has been determined that the hedge is highly effective and can
reasonably be expected to remain so. Management is not aware of any events that
would result in the reclassification into earnings of gains and losses that are
currently reported in accumulated other comprehensive income except for the
change in the FMV of the interest rate cap which pertains to the time value of
the hedging instrument. The FMV is estimated using the calculated FMV of similar
instruments.
-7-
<PAGE>
The following depicts the change in fair market value of the interest rate
cap:
Carrying Value Changes in Carrying Value
At January 1, Fair Market At March 31,
2000 Value 2000
-------------- ----------- --------------
(In thousands)
Intrinsic value $ 2,813 $ (440) $ 2,373(1)
Time value 2,131 (57)(2) $ 2,074
---------------- --------------- ---------
$ 4,944 $ (497) $ 4,447
================ =============== =========
(1) Included in other comprehensive income, net of taxes.
(2) Included in interest expense on the hedged item (trust preferred
borrowings).
An additional provision of SFAS 133 affords the opportunity to reclassify
investment securities between held-to-maturity, available-for-sale and trading.
The corporation reclassified $72.5 million in investments and mortgage-backed
securities from held-to-maturity to available-for-sale. Of the $72.5 million
transferred, $55.4 million was sold at a loss of $1.3 million, net of tax. In
accordance with SFAS No. 133, this loss was included in the statement of
operations as a cumulative effect of a change in accounting principle.
5. COMPREHENSIVE INCOME
The following schedule depicts other comprehensive income as required by
SFAS No. 130:
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
2000 1999
--------- ---------
(Unaudited)
(Dollars in Thousands)
<S> <C> <C>
Net income ................................................... $ 4,138 $ 4,391
Other Comprehensive Income:
Net unrealized holding gains (losses) on securities
available-for-sale arising during the period................ (2,830) (508)
Net unrealized holding loss arising during the period on
derivatives used for cash flow hedge........................ (326) -
Reclassification adjustment for (gains) losses included in
net income ................................................. 1,603 (1)
------- -------
Total comprehensive income, before other comprehensive
income that resulted from the cumulative effect of a
change in accounting principle......................... 2,585 3,882
Net unrealized gain on derivatives used for cash flow hedging
as a result of adopting SFAS No. 133........................ 2,240 -
------- -------
Total comprehensive income $ 4,825 $ 3,882
======= =======
</TABLE>
-8-
<PAGE>
WSFS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
WSFS Financial Corporation (Company or 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
maintain its high-performing financial services company status by focusing on
its core banking business 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 among the four largest financial institutions in
the state on the basis of total deposits traditionally garnered in-market. The
Corporation's primary market area is the Mid-Atlantic region of the United
States which is characterized by a diversified manufacturing and service
economy.
The Bank provides residential and commercial real estate, commercial
and consumer lending services, as well as cash management services funding these
activities primarily with retail deposits and borrowings. The banking operations
of WSFS are presently conducted from 24 retail banking offices located in
Northern Delaware and Southeastern Pennsylvania. Deposits are insured by the
Federal Deposit Insurance Corporation (FDIC).
Fully owned subsidiaries of the Bank include WSFS Credit Corporation
(WCC), which is engaged primarily in indirect motor vehicle leasing; and 838
Investment Group, Inc., which markets various insurance products and securities
through the Bank's branch system.
In addition, the Bank has majority control of two non-wholly owned
subsidiaries, CustomerOne Financial Network (C1FN) and Wilmington National
Finance, Inc. (WNFI). See Footnote 3 of the Consolidated Financial Statements
for further discussion.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Financial Condition
Total assets declined $114.0 million during the quarter to $1.6 billion at
March 31, 2000. During the first three months, management employed a
deleveraging strategy in which the Corporation divested of certain investments
securities and residential mortgages with below market interest rates, thereby
repositioning the balance sheet to allow room for higher yielding loans and
share buybacks. As a result, the Corporation sold approximately $126.5 million
in investments and mortgage-backed securities as well as $25.0 million in
residential mortgage loans. These declines were partially offset by net loans
which increased $39.8 excluding the above mentioned loan sales.
Total liabilities decreased $113.0 million during the first quarter to $1.5
billion at March 31, 2000. Total borrowings declined $149.1 million during the
first three months as proceeds from the investment and loan sales were used to
repay $125.0 million in FHLB advances and $24.0 million in other borrowed funds.
These declines were offset in part by a $32.6 million growth in retail deposits.
Capital Resources
Stockholders' equity decreased $448,000 between December 31, 1999 and March
31, 2000. This decrease reflects the purchase of 431,500 treasury shares, at
$5.0 million ($11.58 per share average). At March 31, 2000, the Corporation held
in its treasury 3,954,769 shares of its common stock at a cost of $46.9 million.
This decline in equity was partially offset by net income of $4.1 million for
the first quarter of 2000.
-9-
<PAGE>
A table presenting the Bank's consolidated capital position relative to the
minimum regulatory requirements as of March 31, 2000 (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) ........ $147,172 13.08% $90,029 8.00% $112,536 10.00%
Core Capital (to Adjusted
Tangible Assets).................. 139,264 8.49 65,635 4.00 82,044 5.00
Tangible Capital (to Tangible
Assets) .......................... 139,134 8.48 24,611 1.50 N/A N/A
Tier 1 Capital (to Risk-Weighted
Assets)........................... 139,264 12.38 N/A N/A 67,522 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,
"Tier 1" capital equal to 4.0% of risk weighted assets and "total" or
"risk-based" capital (a combination of core and "supplementary" capital) equal
to 8.0% of risk-weighted assets. Failure to meet minimum capital requirements
can initiate certain mandatory - and possibly additional discretionary-actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. At March 31, 2000 the Bank was in compliance with
regulatory capital requirements and was deemed a "well-capitalized" institution.
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, 2000, the Bank's liquidity ratio
was 5.3% compared to 6.4% at December 31, 1999. 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.
-10-
<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,
2000 1999
---- ----
(Dollars in Thousands)
<S> <C> <C>
Nonaccruing loans:
Commercial .............................................. $ 1,515 $ 2,630
Consumer ................................................ 277 310
Commercial mortgages .................................... 1,382 1,808
Residential mortgages ................................... 2,672 2,617
Construction ............................................ - -
--------- ---------
Total nonaccruing loans ...................................... 5,846 7,365
Nonperforming investments in real estate ..................... - -
Assets acquired through foreclosure .......................... 1,356 1,061
--------- ---------
Total nonperforming assets ................................... $ 7,202 $ 8,426
========= =========
Restructured loans ........................................... $ - $ -
========= =========
Past due loans and leases:
Residential mortgages ................................... $ 412 $ 333
Commercial and commercial mortgages ..................... 384 504
Consumer ................................................ 326 249
--------- ---------
Total past due loans ......................................... $ 1,122 $ 1,086
========= =========
Ratios:
Nonperforming loans/leases to total
loans/leases (1) ..................................... 0.51% 0.67%
Allowance for loan/lease losses to total gross
Loans/leases (1)...................................... 2.18 2.22
Nonperforming assets to total assets .................... .44 .48
Loan loss/lease loss allowance to nonaccruing
loans/leases (2)...................................... 412.97 322.61
Loan/lease and foreclosed asset allowance to total
Nonperforming assets (2) .............................. 338.74 285.00
</TABLE>
(1) Total loans exclude loans held for sale.
(2) The applicable allowance represents general valuation allowances only.
Nonperforming assets decreased $1.2 million between March 31, 2000 and
December 31, 1999. This decrease resulted primarily from a $1.1 million
reduction in nonaccruing commercial loans. An analysis of the change in the
balance of nonperforming assets is presented on the following page.
-11-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, 2000 December 31, 1999
------------------ -----------------
(In Thousands)
<S> <C> <C>
Beginning balance......................................... $ 8,426 $ 11,083
Additions ........................................... 8,174 20,562
Collections/sales ................................... (8,888) (18,930)
Transfers to accrual/restructured status............. (121) (2,937)
Provisions, charge-offs, other adjustments........... (389) (1,352)
--------- ----------
Ending balance............................................ $ 7,202 $ 8,426
========== ==========
</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 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. Management regularly
reviews interest-rate sensitivity of the Corporation and adjusts sensitivity
within acceptable tolerance ranges established by management. 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.
At March 31, 2000, interest-bearing liabilities exceeded interest-earning assets
that mature within one year (interest-sensitive gap) by $8.2 million. The
Corporation's interest-sensitive assets as a percentage of interest-sensitive
liabilities within the one-year window increased to 98.9% at March 31, 2000
compared to 97.7% at December 31, 1999. Likewise, the one-year
interest-sensitive gap as a percentage of total assets increased to a negative
.50% from a negative 1.03% at December 31, 1999. 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, 2000 AND 1999
Results of Operations
The Corporation recorded net income of $4.1 million or $0.37 per diluted
share for the first quarter of 2000. This compares to $4.4 million or $.38 per
share for the same quarter last year. Results for the first quarter of 2000
reflect several large items including a $5.8 million increase to interest income
from an adjustment to the value of the Company's reverse mortgage portfolio.
This adjustment resulted from improved cash flow from the portfolio, driven
primarily by the strong residential real-estate markets and accelerated maturity
events. This was partially offset by a $4.7 million pretax loss on the sale of
approximately $127 million in securities and loans as part of the Company's
de-leverage/share buyback program. Results also included a $1.6 million pretax
loss on the Corporations start-up initiatives, WNFI and C1FN. The Corporation
also recognized an additional $400,000 provision for losses on off-lease
automobile inventory, the result of continued weakness in the used car market.
The net effect of these large items depressed per share income by approximately
$.05 for the quarter.
-12-
<PAGE>
Net Interest Income
The table below provides information concerning the balances, yields and
rates on interest-earning assets and interest-bearing liabilities during the
periods indicated.
<TABLE>
<CAPTION>
Three Months Ended March 31,
-------------------------------------------------------------------------------
2000 1999
-------------------------------------- ------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate (1)
----------- ---------- --------- ---------- ---------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans (2) (3):
Real estate loans (4)............ $ 603,136 $ 12,196 8.09% $ 523,127 $ 10,710 8.19%
Commercial loans ................ 114,851 2,251 8.72 93,371 1,665 8.34
Consumer loans................... 179,230 4,282 9.61 165,394 3,914 9.60
----------- --------- ----------- ----------
Total loans.................... 897,217 18,729 8.48 781,892 16,289 8.48
Mortgage-backed securities (5)........ 406,035 6,620 6.52 506,673 8,012 6.33
Loans held-for-sale (3)............... 22,636 406 7.17 2,163 38 7.03
Investment securities (5)............. 41,194 705 6.85 37,085 578 6.23
Other interest-earning assets ........ 72,809 8,477 46.57 80,581 2,272 11.28
----------- --------- ----------- ----------
Total interest-earning assets.... 1,439,891 34,937 9.78 1,408,394 27,189 7.80
--------- ----------
Allowance for loan losses............. (23,350) (23,648)
Cash and due from banks............... 54,359 51,286
Vehicles under operating lease, net... 216,976 206,517
Other noninterest-earning assets...... 41,813 36,640
----------- -----------
Total assets..................... $ 1,729,689 $ 1,679,189
=========== ===========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand................. $ 85,823 546 2.56 $ 66,624 364 2.22
Savings.......................... 258,897 2,286 3.55 219,475 1,611 2.98
Retail time deposits ............ 272,629 3,129 4.62 326,826 3,916 4.86
Jumbo certificates of deposits .. 28,613 392 5.51 77,844 1,015 5.29
Brokered certificates of deposit. 138,825 2,082 6.03 71,400 1,132 6.43
----------- --------- ----------- ----------
Total interest-bearing deposits 784,787 8,435 4.32 762,169 8,038 4.28
FHLB of Pittsburgh advances........... 507,099 7,287 5.78 498,500 6,499 5.29
Trust preferred borrowings............ 50,000 1,143 9.04 50,000 987 7.89
Other borrowed funds.................. 151,644 2,318 6.11 159,996 2,206 5.52
----------- --------- ----------- ----------
Total interest-bearing liabilities 1,493,530 19,183 5.14 1,470,665 17,730 4.82
--------- ----------
Noninterest-bearing demand deposits... 113,211 101,430
Other noninterest-bearing liabilities. 20,321 19,448
Minority interest .................... 4,842
Stockholders' equity.................. 97,785 87,646
----------- -----------
Total liabilities and stockholders'
equity........................ $ 1,729,689 $ 1,679,189
=========== ===========
Deficit of interest-earning assets over
interest-bearing liabilities..... $ (53,639) $ (62,271)
============ ===========
Net interest and dividend income...... $ 15,754 $ 9,459
========= ==========
Interest rate spread.................. 4.64% 2.98%
==== ====
Net interest margin................... 4.45% 2.77%
==== ====
Net interest and dividend income to
total average assets............. 3.71% 2,32%
==== ====
</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.
-13-
<PAGE>
Net interest income increased $6.3 million between the three months ended
March 31, 2000 and 1999. The increase was due primarily to a $5.8 million
interest income adjustment in the reverse mortgage portfolio. The adjustment to
the value of the portfolio was a result of improved cash flows driven by strong
residential real-estate markets and accelerated maturity events. The net
interest margin for the three months ended March 31, 2000 was 4.45%. If the $5.8
million adjustment were excluded from net interest income, the margin would be
2.83%, which is an increase of 6 basis points from 2.77% for the three months
ended March 31, 1999. Total interest income, excluding the adjustment, increased
$1.9 million between comparable quarters. The increase is attributed to the
increase in average loans of $115.3 million partially offset by the decline in
average mortgage-backed securities of $100.6 million from the sale of securities
related to the de-leverage program. Total interest expense increased $1.5
million between the three months ended March 31, 2000 and 1999. The increase was
a result of the higher cost of borrowings and an increase in average
interest-bearing deposits of $22.6 million from March 31, 1999. The cost of
borrowings, including trust-preferred borrowings, increased 60 basis points to
6.07% from 5.47% 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.
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, 2000 December 31, 1999
---------------------- ------------------
(Dollars in Thousands)
<S> <C> <C>
Beginning balance ............................................ $23,024 $23,689
Provision for loan losses .................................... 228 1,004
Balance at acquisition for purchased credit card portfolio.... 175
Charge-offs:
Residential real estate ................................. 28 172
Commercial real estate (1) .............................. - 692
Commercial............................................... 12 437
Consumer (2) ............................................ 368 1,016
------- -------
Total charge-offs..................................... 408 2,317
------- -------
Recoveries:
Residential real estate ................................. - -
Commercial real estate (1) ................................... 182 271
Commercial .............................................. 17 116
Consumer (2)............................................. 209 261
------- -------
Total recoveries ..................................... 408 648
------- -------
Net charge-offs .............................................. - 1,669
------- -------
Ending balance................................................ $23,427 $23,024
======= =======
Net charge-offs to average gross loans outstanding, net
of unearned income (3)..................................... -% .21%
======= =======
</TABLE>
(1) Includes commercial mortgages and construction loans.
(2) Includes finance-type leases.
(3) Ratio for the three months ended March 31, 2000 is annualized.
-14-
<PAGE>
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, 2000 December 30, 1999
------------------- ------------------
(Dollars in Thousands)
<S> <C> <C>
Beginning balance ............................................ $ 1,467 $ 992
Provision for losses on vehicles under operating leases....... 44 864
Charge-offs................................................... 153 667
Recoveries ................................................... 61 278
-------- --------
Net charge-offs .............................................. 92 389
-------- --------
Ending balance ............................................... $ 1,419 $ 1,467
======== ========
</TABLE>
Other Income
Other income for the three months ended March 31, 2000 was $4.7 million
or $1.9 million lower than the same period last year. The major factor
contributing to this decrease was the loss of $2.5 million on the sale of
investments and mortgage-backed securities. This sale was part of the deleverage
plan discussed previously. This decrease was partially offset by increases of
$495,000 in credit/debit card and ATM income and $260,000 in deposit service
charges. These increases reflect increases in deposit accounts, card usage and
the growth in the ATM network.
Other Expenses
Other expenses for the quarter were $13.9 million or $4.0 above the
first quarter of 1999. This increase, associated with salary related expenses,
marketing, premises and equipment expenses and data processing expenses, relate
to the opening of four new retail offices, ATM expansion and startup expenses
for two new subsidiaries, Wilmington National Finance, Inc. and CustomerOne
Financial Network, Inc. These two subsidiaries added approximately $3.1 million
in additional expenses to the consolidated results.
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 first quarter of 2000 of $2.2 million
along with an $837,000 benefit relating to a change in accounting principle.
Income taxes for the first quarter of 1999 were $1.5 million. The effective tax
rates for the first quarter of 2000 and 1999 were 25% and 26%, respectively.
The Corporation analyzes its projections of taxable income on an ongoing
basis and makes adjustments to its provision for income taxes accordingly.
Cumulative Effect of a Change in Accounting Principal
On January 1, 2000, the Corporation adopted Statement of Financial
Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments
and Hedging Activities". A provision of SFAS 133 affords the opportunity to
reclassify investment securities between held-to-maturity, available-for-sale
and trading. At adoption, the corporation reclassified $72.5 million in
investments and mortgage-backed securities from held-to-maturity to
available-for-sale. Of the $72.5 million transferred, $55.4 million was sold at
a loss of $1.3 million, net of tax. In accordance with SFAS No. 133, this loss
was included in the statement of operations as a cumulative effect of a change
in accounting principle.
-15-
<PAGE>
In addition, the difference at January1, 2000 between the fair value and
carrying value of $2.2 million, net of tax,relating to an interest rate cap is
included in comprehensive income as a cumulative change in accounting principle.
SEGMENT INFORMATION
Under the definition of SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" the Corporation has four operating segments
at March 31, 2000: Wilmington Savings Fund Society, FSB (Bank), WSFS Credit
Corporation (WCC), CustomerOne Financial network, Inc. (C1FN) and Wilmington
National Finance, Inc. (WNFI). C1FN and WNFI are not wholly-owned, but are
majority-controlled subsidiaries started in 1999. Only the Bank and WCC were
operating segments at March 31, 1999.
The Bank segment provides financial products through its branch network to
consumer and commercial customers. The WSFS Credit Corporation segment provides
auto loans and leases indirectly through unrelated auto dealerships within the
Mid-Atlantic region. C1FN is a start-up company in which the Bank has voting
control and shares in 42% of the operating results at March 31, 2000. C1FN
provides direct-to-customer marketing, servicing, Internet development and
technology management for "branchless" financial services. WSFS and C1FN are
engaged in a joint effort through a division of the Bank, everbank.com, to
provide internet banking on a national level. WNFI, a 51% owned subsidiary,
which began operations in December 1999, is engaged in home equity lending.
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 for the three
months ended March 31, 2000 and 1999 is as follows:
-16-
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended March 31, 2000
-----------------------------------------------------------------------
Bank WCC C1FN WNFI Total
------ ----- ------ ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
External customer revenues:
Interest income....................... $ 34,126 $ 445 $ 366 $ - $ 34,937
Other income ......................... 885 3,612(1) 12 189 4,698
----------- ---------- --------- -------- ---------
Total external customer revenues ......... 35,011 4,057 378 189 39,635
----------- ---------- --------- -------- ---------
Intersegment revenues:
Interest income....................... 3,356 0 - 20 3,376
Other income ......................... 83 3 - - 86
----------- ---------- --------- -------- ---------
Total intersegment revenues .............. 3,439 3 - 20 3,462
----------- ---------- --------- -------- ---------
Total revenue............................. 38,450 4,060 378 209 43,097
----------- ---------- --------- -------- ---------
External customer expenses:
Interest expense...................... 18,960 0 214 9 19,183
Other expenses ....................... 10,005 454 1,643 1,168 13,270
Other depreciation and
amortization .................... 687 19 100 25 831
----------- ---------- --------- -------- ---------
Total external customer expenses ......... 29,652 473 1,957 1,202 33,284
----------- ---------- --------- -------- ---------
Intersegment expenses:
Interest expense...................... 20 3,356(2) - - 3,376
Other expenses ....................... 3 23 60 - 86
----------- ---------- --------- -------- ---------
Total intersegment expenses .............. 23 3,379 60 - 3,462
----------- ---------- --------- -------- ---------
Total expenses ........................... 29,675 3,852 2,017 1,202 36,746
----------- ---------- --------- -------- ---------
Income before taxes, minority interest
and cumulative effect of change
in accounting principle............... 8,775 208 (1,639) (993) 6,351
Less: minority interest .................. (950) (281) (1,231)
Provision for income taxes ............... 2,188
Cumulative effect of change in
Accounting principle .................. (1,256)
---------
Consolidated net income .................. $ 4,138
=========
At March 31, 2000
-----------------------------------------------------------------------
Bank WCC C1FN WNFI Total
------ ----- ------ ------ -------
(Dollars in thousands)
Segment assets .......................... 1,583,809 251,285 45,724 3,612 $1,884,430
Elimination of intersegment receivables.. (244,615)
----------
Consolidated assets ..................... $1,639,815
==========
Capital expenditures...................... $ 637 $ 94 $ 894 $ 70 $ 1,695
</TABLE>
(1) Operating lease income net of depreciation and loss provision
(2) Intersegment interest based on the Corporation's weighted average wholesale
borrowing costs which was 6.07% for the three months ended March 31, 2000.
-17-
<PAGE>
<TABLE>
<CAPTION>
For the three months ended March 31, 1999
-----------------------------------------
Bank WCC Total
------ ----- -------
<S> <C> <C> <C>
External customer revenues:
Interest income.................................................... $ 26,661 $ 528 $ 27,189
Other income ...................................................... 2,898 3,673(1) 6,571
---------- ---------- ----------
Total external customer revenues ...................................... 29,559 4,201 33,760
---------- ---------- ----------
Intersegment revenues:
Interest income.................................................... 2,943(2) - 2,943
Other income ...................................................... 23 2 25
---------- ---------- ----------
Total intersegment revenues ........................................... 2,966 2 2,968
---------- ---------- ----------
Total revenue.......................................................... 32,525 4,203 36,728
---------- ---------- ----------
External customer expenses:
Interest expense .................................................. 17,730 - 17,730
Other expenses..................................................... 9,054 436 9,490
Other depreciation and amortization................................ 585 21 606
---------- ---------- ----------
Total external customer expenses ...................................... 27,369 457 27,826
---------- ---------- ----------
Intersegment expense:
Interest expense................................................... - 2,943(2) 2,943
Other expenses..................................................... 2 23 25
---------- ---------- ----------
Total intersegment expenses ........................................... 2 2,966 2,968
---------- ---------- ----------
Total expenses ........................................................ 27,371 3,423 30,794
---------- ---------- ----------
Income before taxes and extraordinary item............................. 5,154 780 5,934
Provision for income taxes ............................................ 1,543
----------
Consolidated net income ............................................... $ 4,391
==========
At March 31, 1999
----------------------------------------
Bank WCC Total
------ ----- -------
Segment assets......................................................... 1,687,374 238,155 $1,925,529
Elimination of intersegment receivables................................ (227,040)
-----------
Consolidated assets.................................................... $1,698,489
==========
Capital expenditures................................................... $ 1,339 $ 32 $ 1,371
</TABLE>
(1) Operating lease income net of depreciation and loss provision
(2) Intersegment interest based on the Corporation's weighted average wholesale
borrowing costs which was 5.47% for the three months ended March 31, 1999.
-18-
<PAGE>
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, 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.
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 the net portfolio value ratio of an immediate change in interest rates in 100
basis point increments. The net portfolio value ratio is defined as the net
present value of assets minus liabilities, and plus or minus off-balance sheet
contracts divided by the net present value of assets. The chart below is the
estimated impact of immediate changes in interest rates on net interest margin
and the net portfolio value ratio at the specified levels at March 31, 2000 and
1999, calculated in compliance with Thrift Bulletin No. 13A:
<TABLE>
<CAPTION>
March 31,
---------------------------------------------------------------------
2000 1999(1)
---------------------------------------------------------------------
Change in % Change in % Change in
Interest Rate Net Interest Net Portfolio Net Interest Net Portfolio
(Basis Points) Margin (2) Value Ratio(3) Margin (2) Value Ratio (3)
------------- ------------ -------------- ----------- ---------------
<S> <C> <C> <C> <C>
+300 4% 5.54% 2% 5.36%
+200 1% 5.75% 1% 5.78%
+100 1% 5.97% 1% 6.22%
0 0% 6.18% 0% 6.69%
-100 -1% 6.41% -1% 7.19%
-200 -2% 6.64% -2% 7.72%
-300 -3% 6.90% -4% 8.29%
</TABLE>
(1) March 31, 1999 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 net portfolio value ratio of the Company in a
stable interest rate environment and the net portfolio value ratio as projected
in the various rate increments.
The Company's primary objective in managing interest 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.
-19-
<PAGE>
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Corporation's Annual Stockholder's Meeting (the Meeting) held on
April 27, 2000, all of the nominees for director proposed by the Corporation
were elected. The votes cast for each such nominee were as follows:
For Witheld
--- -------
Linda C. Drake 9,820,547 104,115
David E. Hollowell 9,820,547 104,115
Clairbourne D. Smith 9,816,093 108,569
Eugene W. Weaver 9,814,851 109,811
Also at the meeting, the shareholders approved an amendment to the WSFS
Financial Corporation 1997 Stock Option Plan to increase the number of shares of
Common Stock reserved for issuance thereunder from 625,000 shares to 1,165,000.
The votes cast were as follows:
For Against Abstained
--- ------- ---------
8,123,905 1,137,019 663,738
Item 6. Exhibits and Reports on Form 8-K
(a) None.
-20-
<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 11, 2000 \s\ MARVIN N. SCHOENHALS
-------------------------------
Marvin N. Schoenhals
Chairman, President and Chief Executive Officer
Date: May 11, 2000 \s\ MARK A. TURNER
-------------------------------------
Mark A. Turner
Executive Vice President and
Chief Financial Officer
-21-
<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-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 58,505
<INT-BEARING-DEPOSITS> 5,482
<FED-FUNDS-SOLD> 4,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 214,133
<INVESTMENTS-CARRYING> 135,654
<INVESTMENTS-MARKET> 0
<LOANS> 919,388
<ALLOWANCE> 23,427
<TOTAL-ASSETS> 1,639,815
<DEPOSITS> 943,302
<SHORT-TERM> 133,393
<LIABILITIES-OTHER> 22,850
<LONG-TERM> 440,000
0
0
<COMMON> 11,482
<OTHER-SE> 84,223
<TOTAL-LIABILITIES-AND-EQUITY> 1,639,815
<INTEREST-LOAN> 19,135
<INTEREST-INVEST> 7,325
<INTEREST-OTHER> 8,477
<INTEREST-TOTAL> 34,937
<INTEREST-DEPOSIT> 8,435
<INTEREST-EXPENSE> 19,183
<INTEREST-INCOME-NET> 15,754
<LOAN-LOSSES> 228
<SECURITIES-GAINS> (2,466)
<EXPENSE-OTHER> 13,873
<INCOME-PRETAX> 7,582
<INCOME-PRE-EXTRAORDINARY> 5,394
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,138
<EPS-BASIC> .37
<EPS-DILUTED> .37
<YIELD-ACTUAL> 9.78
<LOANS-NON> 5,846
<LOANS-PAST> 1,122
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 23,024
<CHARGE-OFFS> 408
<RECOVERIES> 408
<ALLOWANCE-CLOSE> 23,427
<ALLOWANCE-DOMESTIC> 23,427
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
