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)
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-
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-
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-
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-
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-
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-
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-
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-
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-
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-
<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-
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-
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-
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-
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-
<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-
<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-
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-
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-
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-