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, 2001 ----------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------------- -------------------- Commission File Number 0-16668 ------- WSFS FINANCIAL CORPORATION - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 22-2866913 - -------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 838 Market Street, Wilmington, Delaware 19899 - ---------------------------------------- ----------- (Address of principal executive offices) (Zip Code) (302)792-6000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------ ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 7, 2001: Common Stock, par value $.01 per share 9,883,634 - -------------------------------------- -------------------- (Title of Class) (Shares Outstanding) -1-
WSFS FINANCIAL CORPORATION FORM 10-Q INDEX PART I. Financial Information Page Item 1. Financial Statements Consolidated Statement of Operations for the Three Months Ended March 31, 2001 and 2000 (Unaudited).......................... 3 Consolidated Statement of Condition as of March 31, 2001 (Unaudited) and December 31, 2000.................................. 5 Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2001 and 2000 (Unaudited)................................ 6 Notes to the Consolidated Financial Statements for the Three Months Ended March 31, 2001 and 2000 (Unaudited)................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 22 PART II. Other Information Item 4. Submission of Matters to a Vote of Security Holders................ 22 Item 6. Exhibits and Reports on Form 8-K................................... 22 Signatures ................................................................. 23 -2-
WSFS FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS <TABLE> <CAPTION> Three months ended March 31, -------------------------- 2001 2000 -------- -------- (Unaudited) (In Thousands, Except per Share Data) Interest income: <S> <C> <C> Interest and fees on loans ....................................... $ 20,573 $ 18,689 Interest on mortgage-backed securities ........................... 6,012 6,620 Interest and dividends on investment securities .................. 455 707 Interest on investments in reverse mortgages ..................... 1,784 7,767 Other interest income ............................................ 794 709 -------- -------- 29,618 34,492 -------- -------- Interest expense: Interest on deposits ............................................. 10,688 8,435 Interest on Federal Home Loan Bank advances ...................... 3,206 5,010 Interest on federal funds purchased and securities sold under agreements to repurchase ............................ 809 1,463 Interest on trust preferred borrowings ........................... 964 787 Interest on other borrowings ..................................... 127 131 -------- -------- 15,794 15,826 -------- -------- Net interest income ................................................... 13,824 18,666 Provision for loan losses ............................................. 393 228 -------- -------- Net interest income after provision for loan losses ................... 13,431 18,438 -------- -------- Other income: Loan servicing fee income ........................................ 647 540 Deposit service charges .......................................... 1,966 1,471 Credit/debit card and ATM income ................................. 1,550 1,174 Securities losses ................................................ -- (2,466) Gain (loss) on sale of loans ..................................... 2,917 (172) Other income ..................................................... 970 540 -------- -------- 8,050 1,087 -------- -------- Other expenses: Salaries, benefits and other compensation ........................ 8,605 5,910 Equipment expense ................................................ 1,016 959 Data processing and operations expenses .......................... 1,097 1,740 Occupancy expense ................................................ 1,309 947 Marketing expense ................................................ 755 777 Professional fees ................................................ 582 635 ATM fraud loss ................................................... 421 -- Other operating expenses ......................................... 3,022 2,432 -------- -------- 16,807 13,400 -------- -------- Income from continuing operations before minority interest, taxes and cumulative effect of change in accounting principle ............ 4,674 6,125 Less minority interest ................................................ (747) (1,231) -------- -------- Income from continuing operations before taxes and cumulative effect .. of change in accounting principle .................................. 5,421 7,356 Income tax provision .................................................. 1,701 2,096 -------- -------- Income from continuing operations before cumulative effect of change in accounting principle .............................................. 3,720 5,260 Cumulative effect of change in accounting principle net of $837,000 in income tax ...................................... -- (1,256) -------- -------- Income from continuing operations ..................................... 3,720 4,004 -------- -------- Income from discontinued operations, net of taxes ..................... -- 134 -------- -------- Net income ............................................................ $ 3,720 $ 4,138 ======== ======== </TABLE> -3-
WSFS FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS <TABLE> <CAPTION> Three months ended March 31, --------------------------------- 2001 2000 ---------- ------------ (Unaudited) (In Thousands, Except per Share Data) <S> <C> <C> Basic earnings per share: Income from continuing operations before cumulative effect of change in accounting principle................................... $ 0.37 $ 0.47 Cumulative effective of change in accounting principle................ - (0.11) ---------- ------------ Income from continuing operation...................................... 0 .37 0.36 ---------- ------------ Income from discontinued operations, net of taxes..................... -- 0.01 ---------- ------------ Net income ........................................................... $ 0.37 $ 0.37 ========== ============ Diluted earnings per share: Income from continuing operations before cumulative effect of change in accounting principle................................... 0.37 $ 0.47 Cumulative effective of change in accounting principle................ -- (0.11) ---------- ------------ Income from continuing operations..................................... 0.37 0.36 ---------- ------------ Income from discontinued operations, net of taxes..................... -- 0.01 ---------- ------------ Net income ........................................................... $ 0.37 $ 0.37 ========== ============ </TABLE> The accompanying notes are an integral part of these financial statements -4-
WSFS FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CONDITION <TABLE> <CAPTION> March 31, December 31, 2001 2000 ----------- ----------- (Unaudited) (In Thousands) Assets <S> <C> <C> Cash and due from banks .......................................................... $ 78,281 $ 87,849 Federal funds sold and securities purchased under agreements to resell ........... 47,461 3,500 Interest-bearing deposits in other banks ......................................... 21,638 7,318 Investment securities held-to-maturity ........................................... 14,785 14,746 Investment securities available-for-sale ......................................... 6,403 14,994 Mortgage-backed securities held-to-maturity ...................................... 103,075 107,663 Mortgage-backed securities available-for-sale .................................... 277,558 232,055 Investment in reverse mortgages, net ............................................. 33,295 33,683 Loans held-for-sale .............................................................. 28,935 23,313 Loans, net of allowance for loan losses of $21,518 at March 31, 2001 and $21,423 at December 31, 2000 ............................................... 936,582 940,178 Stock in Federal Home Loan Bank of Pittsburgh, at cost ........................... 16,550 28,500 Assets acquired through foreclosure .............................................. 718 630 Premises and equipment ........................................................... 18,408 16,788 Accrued interest and other assets ................................................ 30,813 28,348 Net assets of discontinued operations ............................................ 182,222 199,751 ----------- ----------- Total assets ..................................................................... $ 1,796,724 $ 1,739,316 =========== =========== Liabilities and Stockholders' Equity Liabilities: Deposits: Noninterest-bearing demand ................................................... $ 144,448 $ 139,128 Money market and interest-bearing demand ..................................... 283,118 244,120 Savings ...................................................................... 303,617 289,382 Time ......................................................................... 307,148 282,839 ----------- ----------- Total retail deposits ...................................................... 1,038,331 955,469 Jumbo certificates of deposit ................................................ 38,690 19,030 Brokered certificates of deposit ............................................. 115,175 147,092 ----------- ----------- Total deposits ............................................................. 1,192,196 1,121,591 Federal funds purchased and securities sold under agreements to repurchase ....... 69,300 69,300 Federal Home Loan Bank advances .................................................. 331,000 351,000 Trust preferred borrowings ....................................................... 50,000 50,000 Other borrowed funds ............................................................. 24,901 23,338 Accrued expenses and other liabilities ........................................... 24,005 21,065 ----------- ----------- Total liabilities ................................................................ 1,691,402 1,636,294 ----------- ----------- Minority Interest ................................................................ 5,129 5,876 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 14,813,403 at March 31, 2001 and 14,813,403 at December 31, 2000 ............. 148 148 Capital in excess of par ......................................................... 58,991 58,985 Accumulated other comprehensive income ........................................... 1,857 197 Retained earnings ................................................................ 95,728 92,409 Treasury stock at cost, 4,774,769 shares at March 31, 2001 and 4,629,769 shares at December 31, 2000 ......................................................... (56,531) (54,593) ----------- ----------- Total stockholders' equity ....................................................... 100,193 97,146 ----------- ----------- Total liabilities and stockholders' equity ....................................... $ 1,796,724 $ 1,739,316 =========== =========== </TABLE> The accompanying notes are an integral part of these financial statements. -5-
WSFS FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS <TABLE> <CAPTION> Three Months Ended March 31, ---------------------------- 2001 2000 --------- --------- (Unaudited) (In Thousands) Operating activities: <S> <C> <C> Net income ................................................................................... $ 3,720 $ 4,138 Adjustments to reconcile net income to cash provided by operating activities: Provision for loan, lease and residual value losses ........................................ 393 228 Depreciation, accretion and amortization ................................................... 729 777 Increase in accrued interest receivable and other assets ................................... (5,066) (93) Origination of loans held-for-sale ......................................................... ( 88,000) (45,543) Proceeds from sales of loans held-for-sale ................................................. 79,823 70,611 Increase in accrued interest payable and other liabilities ................................. 2,900 3,211 Increase in reverse mortgage capitalized interest, net ..................................... (1,742) (7,718) Minority interest in net income ............................................................ (747) (1,231) Other, net ................................................................................. 2,983 180 --------- --------- Net cash (used for) provided by operating activities ......................................... (5,007) 24,560 --------- --------- Investing activities: Net (increase) decrease in interest-bearing deposits in other banks .......................... (14,320) 2,544 Maturities of investment securities .......................................................... 8,045 3,293 Sales of investment securities available-for-sale ............................................ 500 10,618 Sales of mortgage-backed securities available-for-sale ....................................... -- 150,605 Purchases of investment securities held-to-maturity .......................................... -- (5,952) Purchases of investment securities available-for-sale ........................................ -- (12,554) Repayments of mortgage-backed securities held-to-maturity .................................... 4,529 10,180 Repayments of mortgage-backed securities available-for-sale .................................. 33,202 4,601 Purchases of mortgage-backed securities available-for-sale ................................... (76,364) (27,347) Repayments of reverse mortgages .............................................................. 4,021 5,104 Disbursements for reverse mortgages .......................................................... (1,855) (2,065) Sales of loans ............................................................................... (8,837) (43,051) Purchase of loans ............................................................................ -- (19,445) Net decrease in loans ........................................................................ 11,597 21,348 Net decrease in stock of Federal Home Loan Bank of Pittsburgh ................................ 11,950 -- Receipts from investment in real estate ...................................................... 270 -- Sales of assets acquired through foreclosure, net ............................................ 229 162 Premises and equipment, net .................................................................. (802) (805) --------- --------- Net cash (used for) provided by investing activities .......................................... (27,835) 97,236 --------- --------- Financing activities: Net increase in demand and savings deposits .................................................. 60,152 48,376 Net increase (decrease) in time deposits ..................................................... 11,949 (9,656) Receipts from FHLB borrowings ................................................................ 45,000 195,000 Repayments of FHLB borrowings ................................................................ (65,000) (320,000) Receipts from reverse repurchase agreements .................................................. -- 20,000 Repayments of reverse repurchase agreements .................................................. -- (45,000) Repayments of Federal funds purchased ........................................................ -- (5,000) Repayments of other borrowings ............................................................... (30) (25) Dividends paid on common stock ............................................................... (405) (338) Issuance of common stock ..................................................................... 6 -- Purchase of treasury stock, net of reissuance ................................................ (1,938) (4,936) Discontinued operations ...................................................................... 17,529 2,990 Minority Interest ............................................................................ (28) 632 --------- --------- Net cash provided by (used for) financing activities ........................................... 67,235 (117,957) --------- --------- Increase in cash and cash equivalents .......................................................... 34,393 3,839 Cash and cash equivalents at beginning of period ............................................... 91,349 59,166 --------- --------- Cash and cash equivalents at end of period ..................................................... $ 125,742 $ 63,005 ========= ========= Supplemental Disclosure of Cash Flow Information: Cash paid for interest during the quarter ...................................................... $ 13,805 $ 16,611 Cash paid (refunded) for income taxes, net ..................................................... 2,098 (915) Loans and transferred to assets acquired through foreclosure ................................... 324 -- Net Change in unrealized gains (losses) on securities available for sale, net of tax ........... 1,660 687 Assets transferred from held-to-maturity to available-for-sale upon adoption of SFAS No. 133: Investment securities ...................................................................... -- 2,000 Mortgage-backed securities ................................................................. -- 128,981 </TABLE> The accompanying notes are an integral part of these financial statements. -6-
WSFS FINANCIAL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED) 1. BASIS OF PRESENTATION The consolidated Financial Statements include the accounts of the parent company, WSFS Capital Trust I, WSFS and its wholly-owned subsidiaries, 838 Investment Group, Inc. and Star States Development Company (SSDC) as well as not wholly-owned, but majority controlled subsidiaries, Wilmington National Finance, Inc. (WNF), formerly Community Credit Corporation, and CustomerOne Financial Network, Inc. (C1FN), see Note 4 for further discussion of non-wholly owned subsidiaries. As discussed in Note 3 of the Financial Statements, the results of WSFS Credit Corporation (WCC), the Corporation's wholly owned indirect auto financing and leasing subsidiary, are presented as discontinued operations, retroactively restated for all periods presented. The consolidated statement of condition at March 31, 2001, the consolidated statement of operations for the three months ended March 31, 2001 and 2000 and the consolidated statement of cash flows for the three months ended March 31, 2001 and 2000 are unaudited, and include all adjustments solely of a normal recurring nature which management believes are necessary for a fair presentation. Certain reclassifications have been made to the prior years' Financial Statements for conformity with the current year's presentation. All significant intercompany transactions are eliminated in consolidation. The results of operations for the three-month period ended March 31, 2001 is not necessarily indicative of the expected results for the full year ended December 31, 2001. The financial statements include the accounts of WSFS Financial Corporation. Such statements have been prepared in accordance with accounting principles generally accepted in the United States of America and applicable to the banking industry. The accompanying unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Corporation's 2000 Annual Report. 2. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: <TABLE> <CAPTION> For the three months ended March 31, -------------------------- 2001 2000 ------- ------- (In Thousands, Except per Share Data) <S> <C> <C> Numerator: Income from continuing operations before cumulative effect of change in accounting principle......................................... $ 3,720 $ 5,260 Cumulative effect of change in accounting principle, net of tax benefit - (1,256) ------- ------- Income from continuing operations...................................... 3,720 4,004 Income from discontinued operations, net of taxes...................... - 134 ------- ------- Net income............................................................. $ 3,720 $ 4,138 ======= ======= Denominator: Denominator for basic earnings per share - weighted average shares ........................................... 10,117 11,133 Employee stock options............................................. 54 16 ------- ------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed exercise................................................... 10,171 11,149 ======== ======== Earnings per share: Basic: Income from continuing operations before cumulative effect of change in accounting principle......................................... $ .37 $ .47 Cumulative effect of change in accounting principle, net of tax benefit -- (.11) ------- ------- Income from continuing operations...................................... .37 .36 Income from discontinued operations, net of taxes...................... -- .01 ------- ------- Net income ......................................................... $ .37 $ .37 ======= ======= </TABLE> -7-
<TABLE> <CAPTION> For the three months ended March 31, -------------------------- 2001 2000 ------- ------- (In Thousands, Except per Share Data) <S> <C> <C> Earnings per share: Diluted: Income from continuing operations before cumulative effect of change in accounting principle......................................... $ .37 $ .47 Cumulative effect of change in accounting principle, net of tax benefit -- (.11) ------- ------- Income from continuing operations...................................... .37 .36 Income from discontinued operations, net of taxes...................... -- .01 ------- ------- Net income ............................................................ $ .37 $ .37 ========= ======= </TABLE> The Corporation had 530,048 and 488,830 anti-dilutive common stock options outstanding at March 31, 2001 and 2000, respectively. They are excluded from the calculation of diluted earnings per share for the periods presented. 3. Discontinued Operations of a Business Segment On December 21, 2000, the Board of Directors of WSFS Financial Corporation approved plans to discontinue the operations of WSFS Credit Corporation (WCC), the Company's indirect auto finance business segment. WCC, which had approximately 6,800 lease contracts and 2,500 loan contracts at March 31, 2001, no longer accepts new applications but will continue to service existing loans and leases. Management estimates that substantially all loan and lease contracts will mature by the end of December 2003. Accounting for discontinued operations of a business segment requires that the Company forecast operating results over the wind-down period and immediately accrue any expected net losses as a one time charge. The historic results of WCC's operations, the one-time charge, and the future reported results of WCC are required to be treated as Discontinued Operations of a Business Segment, and shown in summary form separately from the Company's results of continuing operations in reported results of the Corporation. Prior periods are restated, as required by generally accepted accounting principles. As a result, net operating income of $134,000 for the three months year ended March 31, 2000 were reclassified from continuing operations to discontinued operations. In addition, the Corporation established a $6.2 million pretax reserve in the fourth quarter of 2000 to absorb expected future losses. This reserve will be reevaluated quarterly with adjustments, if necessary, recorded as income/losses from discontinued operations. Accounting for discontinued operations also requires that the net assets (assets less third party liabilities) be reclassified on the balance sheet to a single line item, Net assets of discontinued operations. The following chart depicts the net assets of discontinued operations at March 31, 2001 and December 31, 2000: <TABLE> <CAPTION> At March 31, At December 31, 2001 2000 --------------------------------- (In Thousands) <S> <C> <C> Net loans....................................... $ 25,486 $ 27,877 Vehicles under operating leases, net............ 160,684 175,745 Premises and equipment.......................... 74 131 Other Assets 3,292 3,931 Less: Reserve for losses of discontinued operations...................................... 6,041 6,169 Other liabilities........................... 1,273 1,764 -------- -------- Net assets of discontinued operations........... $182,222 $199,751 ======== ======== </TABLE> -8-
The following table depicts the net income from discontinued operations for the three months ended March 31, 2001 and 2000: For the three months Ended March 31, ------------------- 2001 2000 ------- ------- (In Thousands) Interest income ...................................... $ 559 $ 446 Allocated interest expense (1) ....................... 2,992 3,357 ------- ------- Net interest expense ................................. (2,433) (2,911) ------- ------- Loan and lease servicing fee income .................. 149 280 Rental income on operating leases, net ............... 2,678 3,322 Other income ......................................... 4 10 ------- ------- 2,831 3,612 Other operating expenses ........................... 526 473 ------- ------- (Loss) income before taxes ........................... (128) 228 Reserve for discontinued operations .................. 128 -- ------- ------- Income tax provision ................................. -- 94 ------- ------- Income from discontinued operations .................. $ -- $ 134 ======= ======= (1) Allocated interest expense based on the Company's annual average wholesale borrowings rate which was 6.22% and 6.07% for the three months ended March 31, 2001and 2000, respectively. 4. INVESTMENTS IN NONWHOLLY-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-consumer marketing, servicing, Internet development and technology management for "branchless" financial services. As a result of this investment, C1FN's Internet-only banking structure became part of everbank.com(TM), a division of WSFS. C1FN assists WSFS in managing the operations of everbank.com.(TM) everbank.com(TM) began marketing Internet-only banking to a national clientele in November of 1999. WSFS is the single largest shareholder in C1FN, has majority control through a voting trust and for the three months ended March 31, 2001, shared in 29% of the operating results of C1FN. In addition, WSFS received warrants for the purchase of 20% additional ownership of C1FN. On December 29, 2000, C1FN received a $5.0 million investment from a third party investor, with a conditional commitment to invest an additional $12.5 million if and when a separate bank charter is obtained for everbank.com(TM). This investment effectively reduces WSFS' economic ownership of C1FN to 29% at March 31, 2001. Since WSFS retains control of C1FN through a voting trust, the results of C1FN will continue to be consolidated into the operating results of WSFS until everbank.com(TM) obtains a separate banking charter. If and when everbank.com(TM) obtains a banking charter, WSFS will no longer have control. This investment may then be accounted for under the equity method. Additionally, in November 1999, the Corporation expanded the local retail home equity lending business of Community Credit Corporation (CCC) which initially started operations in 1994. CCC was renamed Wilmington National Finance, Inc. (WNF) which expanded its sales to a national level and now aggregates loans primarily through brokers and sells them to investors. WSFS retained a 51% ownership with the remainder held by WNF's executives retained to lead the expansion of WNF. WSFS also has warrants to obtain an additional 15% ownership in WNF. Both C1FN and WNF are consolidated into the financial statements of WSFS Financial Corporation. The portion of equity and operating results attributable to investors in C1FN and WNF, other than WSFS, are reported as minority interest. -9-
5. 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", as amended by SFAS Nos. 137 and 138. 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 rate 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 is 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 directly 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 fair value is estimated using quoted prices for similar instruments. The following depicts the change in fair market value of the interest rate cap: <TABLE> <CAPTION> For the three months ended ------------------------------------------------------------------------------- 2001 2000 ----------------------------------- ----------------------------------- At At At At December 31 Change March 31 January 1 Change March 31 ----------- ------ -------- --------- ------ -------- (In Thousands) <S> <C> <C> <C> <C> <C> <C> Intrinsic value (1) $ 193 $ (67) $ 126(1) $ 2,813 $ (440) $2,373(1) Time value (2) 1,804 70(2) 1,874 2,131 (57)(2) 2,074 ------- -------- ------- ------- ------- ------- Total $ 1,997 $ 3 $ 2,000 $ 4,944 $ (497) $ 4,447 ======= ======== ======= ======= ======= ======= </TABLE> 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 at the date of adoption. Accordingly, the Corporation reclassified $131.0 million in investments and mortgage-backed securities from held-to-maturity to available-for-sale and recorded on unrealized loss of $2.4 million net of tax. Of the $131.0 million transferred, $55.4 million was sold at a loss of $1.3 million, net of tax, during the quarter of adoption. 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. -10-
6. COMPREHENSIVE INCOME The following schedule depicts other comprehensive income as required by SFAS No. 130: <TABLE> <CAPTION> Three Months Ended March 31, ---------------------------- 2001 2000 ----------- ------------ (Unaudited) (In Thousands) <S> <C> <C> Net income ............................................................ $ 3,720 $ 4,138 Other Comprehensive Income: Net unrealized holding gains (losses) on securities available-for-sale arising during the period........................... 1,704 (2,458) Net unrealized holding loss arising during the period on derivatives used for cash flow hedge............................................. (44) (286) Reclassification adjustment for losses included in net income - 1,603 ------- ------- Total comprehensive income, before other comprehensive income that resulted from the cumulative effect of a change in accounting principle................................................... 5,380 2,997 Net unrealized gain on derivatives used for cash flow hedging as a result of adopting SFAS No. 133........................... - 1,828 ------- ------- Total comprehensive income........................................ $ 5,380 $ 4,825 ======= ======= </TABLE> -11-
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 169 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 28 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. On December 21, 2000, the Board of Directors approved plans to discontinue the operations of WCC and as a result, has exited the auto leasing business. As discussed Note 3 of the Financial Statements, the results of WCC are presented as discontinued operations, retroactively restated for all periods presented. In addition, the Bank has majority control of two non-wholly owned subsidiaries, CustomerOne Financial Network (C1FN) and Wilmington National Finance, Inc. (WNF). See Footnote 4 of the Consolidated Financial Statements for further discussion. FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY Financial Condition Total assets increased $57.4 million during the first three months of 2001 to $1.797 billion at March 31, 2001. This increase occurred predominantly in mortgage-backed securities of $40.9 million and investment securities and short-term investments of $40.2 million. The increase in investment securities and short-term investments was the result of placing available funds in liquid investments until they can be re-directed into higher yielding assets or used for other corporate purposes. Net loans (including held for sale), increased $2.0 million. These increases were partially offset by decreases of $17.5 million in net assets of discontinued operations. This decrease represents the maturities and repayments of loans and leases at the Corporation's wholly owned indirect leasing subsidiary, WCC. In addition, stock in the Federal Home Loan Bank of Pittsburgh (FHLB) decreased by $12.0 million, due to redemptions. -12-
Total liabilities increased $55.1 million during the first quarter of 2001, to $1.691 billion. Total retail deposits increased $82.9 million, including an increase of $50.0 million at C1FN/everbank. Partially offsetting this increase was a $31.9 million decline in brokered deposits, mainly due to maturities. Also during the quarter the Corporation used excess liquidity to repay $12.0 million in borrowings from the FHLB Capital Resources Stockholders' equity increased $3.0 million between December 31, 2000 and March 31, 2001. This increase reflects net income of $3.7 million for the first quarter of 2001. In addition, other comprehensive income increased $1.7 million. This increase was partially offset by the purchase of 150,000 shares at $2.0 million ($13.31 per share average). At March 31, 2001, the Corporation held in its treasury 4,774,769 shares of its common stock at a cost of $56.5 million. A table presenting the Bank's consolidated capital position relative to the minimum regulatory requirements as of March 31, 2001 (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) ........ $152,512 12.88% $94,747 8.00% $118,434 10.00% Core Capital (to Adjusted Tangible Assets).................. 143,371 7.96 72,035 4.00 90,043 5.00 Tangible Capital (to Tangible Assets) .......................... 143,371 7.96 27,013 1.50 N/A N/A Tier 1 Capital (to Risk-Weighted Assets)........................... 143,371 12.11 N/A N/A 71,060 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, 2001 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, 2001, the Bank's liquidity ratio was 8.9% compared to 8.2% at December 31, 2000. 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. -13-
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, 2001 2000 --------- ------------ (In Thousands) <S> <C> <C> <C> <C> <C> <C> Nonaccruing loans: Commercial .............................................. $ 2,747 $ 2,766 Consumer ................................................ 373 383 Commercial mortgages .................................... 2,450 2,272 Residential mortgages ................................... 2,848 2,704 Construction ............................................ 211 210 -------- --------- Total nonaccruing loans ...................................... 8,629 8,335 Assets acquired through foreclosure .......................... 718 630 -------- --------- Total nonperforming assets ................................... $ 9,347 $ 8,965 ======== ========= Past due loans and leases: Residential mortgages ................................... $ 29 $ 449 Commercial and commercial mortgages ..................... 705 790 Consumer ................................................ - 199 -------- --------- Total past due loans ......................................... $ 734 $ 1,438 ======== ========= Ratios: Nonperforming loans to total loans (1) ............................................ 0.90% 0.87% Allowance for loan losses to total gross Loans (1)............................................. 2.24 2.22 Nonperforming assets to total assets .................... .53 .52 Loan loss allowance to nonaccruing loans (2)............. 241.56 248.81 Loan and foreclosed asset allowance to total nonperforming assets (2) .............................. 225.55 234.01 </TABLE> (1) Total loans exclude loans held for sale. (2) The applicable allowance represents general valuation allowances only. Nonperforming assets increased $382,000 between March 31, 2001 and December 31, 2000. This increase resulted primarily from a $294,000 increase in nonaccruing loans. An analysis of the change in the balance of nonperforming assets is presented on the following page. -14-
<TABLE> <CAPTION> Three Months Ended Year Ended March 31, 2001 December 31, 2000 --------------- ------------------ (In Thousands) <S> <C> <C> Beginning balance......................................... $ 8,965 $ 8,159 Additions ........................................... 1,648 8,332 Collections/sales ................................... (791) (4,323) Transfers to accrual/restructured status............. (428) (1,227) Charge-offs / write-downs............................ (47) (1,976) ---------- --------- Ending balance............................................ $ 9,347 $ 8,965 ========== ========= </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 exclude cash flows that relate to the discontinued operations (WCC), however, funding of $186.2 million for these assets have been included. At March 31, 2001, interest-bearing liabilities exceeded interest-earning assets that mature within one year (interest-sensitive gap) by $218.3 million. The Corporation's interest-sensitive assets as a percentage of interest-sensitive liabilities within the one-year window increased to 77.59% at March 31, 2001 compared to 75.88% at December 31, 2000. Likewise, the one-year interest-sensitive gap as a percentage of total assets increased to a negative 12.15% from a negative 12.66% at December 31, 2000. The change is the result of the Corporation's continuing effort to effectively manage interest rate 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 on the following page 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, 2001 and 2000, calculated in compliance with Thrift Bulletin No. 13A: -15-
<TABLE> <CAPTION> March 31, -------------------------------------------------------------------------- 2001 2000(1) Change in % Change in % Change in Interest Rate Net Interest Net Portfolio Net Interest Net Portfolio (Basis Points) Margin (1) Value Ratio(2) Margin (1) Value Ratio (2) ------------- ------------ --------------- ----------- ---------------- <S> <C> <C> <C> <C> +300 6% 6.20% 6% 6.02% +200 4% 6.24% 3% 6.47% +100 2% 6.28% 2% 6.94% 0 0% 6.50% 0% 7.42% -100 -1% 6.88% -2% 7.94% -200 -3% 7.42% -4% 8.69% -300 -4% 8.07% -6% 9.62% </TABLE> (1) 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. (2) 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. COMPARISON FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 Results of Operations The Corporation recorded net income of $3.7 million or $0.37 per diluted share for the first quarter of 2001. This compares to $4.1 million or $.37 per share for the same quarter last year. Results for the first quarter of 2001 for the Company's start-up initiatives, WNF and C1FN, on a pretax basis, were breakeven for 2001 compared to a $1.4 million loss for 2000. Also during the first quarter of 2001 a $421,000 ATM fraud loss was recorded. This loss was the result of missing or misappropriated funds related to an armored car carrier engaged to supply cash to ATM's operated by customers of Cash Connect, the ATM division of WSFS. Results for the first quarter of 2000 include a $5.8 million one-time catch up adjustment to interest income related to the Company's reverse mortgage portfolio. It also includes a $4.7 million pretax loss on the sale of $127 million in securities and loans as part of the Company's de-leverage /share buyback program. -16-
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, ------------------------------------------------------------------------------- 2001 2000 ----------------------------------- ----------------------------------- Average Yield/ Average Yield/ Balance Interest Rate(1) Balance Interest Rate (1) --------- --------- ----- ---------- ---------- ------ (In Thousands) <S> <C> <C> <C> <C> <C> <C> Assets Interest-earning assets: Loans (2) (3): Real estate loans (4)............ $ 632,889 $ 12,775 8.07% $ 603,136 $ 12,196 8.09% Commercial loans ................ 147,719 2,949 8.75 114,851 2,251 8.72 Consumer loans................... 174,862 4,209 9.76 158,246 3,836 9.75 ---------- --------- ---------- -------- Total loans.................... 955,470 19,933 8.46 876,233 18,283 8.47 Mortgage-backed securities (5)........ 365,877 6,012 6.57 406,035 6,620 6.52 Loans held-for-sale (3)............... 25,182 640 10.17 22,636 406 7.17 Investment securities (5)............. 24,603 455 7.40 41,194 707 6.87 Investment in reverse mortgages....... 34,209 1,784 20.86 30,507 7,767 101.84 Other interest-earning assets ........ 56,450 794 5.70 42,302 709 6.74 ---------- --------- ---------- -------- Total interest-earning assets.... 1,461,791 29,618 8.18 1,418,907 34,492 9.80 --------- -------- Allowance for loan losses............. (21,587) (22,566) Cash and due from banks............... 63,902 54,359 Net assets from discontinued operations 190,389 237,965 Other noninterest-earning assets 46,148 38,346 ---------- ---------- Total assets..................... $1,740,643 $1,727,011 ========== ========== Liabilities and Stockholders' Equity Interest-bearing liabilities: Interest-bearing deposits: Money market and interest- bearing demand................. $ 257,171 2,432 3.84 $ 85,823 546 2.56 Savings.......................... 300,057 2,588 3.50 258,897 2,286 3.55 Retail time deposits ............ 297,546 3,876 5.28 272,629 3,129 4.62 Jumbo certificates of deposits .. 21,975 319 5.89 28,613 392 5.51 Brokered certificates of deposit. 130,464 2,173 6.75 138,825 2,082 6.03 ---------- --------- ---------- -------- Total interest-bearing deposits 1,007,213 11,388 4.59 784,787 8,435 4.32 FHLB of Pittsburgh advances........... 335,333 4,997 6.04 507,099 7,287 5.78 Trust preferred borrowings............ 50,000 964 7.71 50,000 1,143 9.04 Other borrowed funds.................. 94,397 1,437 6.09 151,644 2,318 6.05 Cost of funding discontinued operations - (2,992) - (3,357) ---------- --------- ---------- -------- Total interest-bearing liabilities 1,486,943 15,794 4.25 1,493,530 15,826 4.19 --------- -------- Noninterest-bearing demand deposits... 129,809 113,211 Other noninterest-bearing liabilities. 18,176 17,643 Minority interest .................... 5,373 4,842 Stockholders' equity.................. 100,342 97,785 ---------- ---------- Total liabilities and stockholders' equity........................ $1,740,643 $1,727,011 ========== ========== Deficit of interest-earning assets over interest-bearing liabilities..... $ (25,152) $ (74,623) ========== ========== Net interest and dividend income...... $ 13,824 $ 18,666 ========= ======== Interest rate spread.................. 3.93% 5.61% Net interest margin................... 3.86% 5.34% Net interest and dividend income to total average assets............. 3.24% 4.39% </TABLE> (1) Weighted average yields have been computed on a tax-equivalent basis. (2) Nonperforming loans are included in average balance computations. (3) Balances are reflected net of unearned income. (4) Includes commercial mortgage loans. (5) Includes securities available-for-sale. -17-
Net interest income decreased $4.8 million during the three months ended March 31, 2001 compared to the first quarter of 2000. The decrease was due primarily to a $5.8 million positive interest income adjustment in the reverse mortgage portfolio which occurred in the first quarter of 2000. 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, 2001 was 3.86% compared to 5.34% in the first quarter of 2000. Excluding the reverse mortgage adjustment, the margin in 2000 would have been 3.69%, resulting in an increase of 17 basis points between the periods. Total interest income, excluding the adjustment, increased $1.0 million between comparable quarters. The increase is attributed to the increase in average loans of $79.2 million, partially offset by the decrease in mortgage-backed securities of $40.2 million. Total interest expense was relatively unchanged between the comparable periods, as higher average balances in deposits have offset the decrease in average balances in borrowings. The cost of borrowings, including trust-preferred borrowings, increased 6 basis points to 4.25% from 4.19% over the same period. Allowance for Loan 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 known and inherent losses based upon an evaluation of risks in the portfolios. Management's evaluation is based upon a continuing review of the portfolios which include factors such as the identification of adverse situations that may affect the borrower's ability to repay, a review of overall portfolio quality, prior loss experience and an assessment of current and expected economic conditions. Changes in economic conditions and economic prospects of debtors can occur quickly, and as a result, impact the estimates made by management. The following table represents a summary of the changes in the allowance for loan losses during the periods indicated. <TABLE> <CAPTION> Three Months Ended Three Months Ended March 31, 2001 March 31, 2000 -------------------- ------------------ (In Thousands) <S> <C> <C> Beginning balance ............................................ $21,423 $22,223 Provision for loan losses .................................... 393 228 Balance at acquisition for purchased credit card portfolio.... - 175 Charge-offs: Residential real estate ................................. 18 28 Commercial real estate (1) .............................. - - Commercial............................................... 168 12 Consumer (2) ............................................ 245 276 ------- ------- Total charge-offs..................................... 431 316 ------- ------- Recoveries: Residential real estate ................................. - - Commercial real estate (1) .............................. 26 182 Commercial .............................................. 74 17 Consumer (2)............................................. 33 190 ------- ------- Total recoveries ..................................... 133 389 ------- ------- Net charge-offs (recoveries).................................. 298 (73) ------- ------- Ending balance................................................ $21,518 $22,699 ======= ======= Net charge-offs (recoveries) to average gross loans outstanding, net of unearned income (3).................... .12% (.03)% ======= ======= </TABLE> (1) Includes commercial mortgages and construction loans. (2) Includes finance-type leases. (3) Ratio for the three months ended March 31, 2001 and 2000 are annualized. -18-
Other Income Other income for the three months ended March 31, 2001 was $8.1 million compared to $1.1 million for the first quarter of 2000. This increase was mainly due to a $2.9 million gain on the sale of loans during the first quarter of 2001, which was predominantly attributable to WNF. In addition, there were no securities losses during the first quarter of 2001 compared to a $2.5 million loss in the first quarter of 2000. Deposit service charges increased $495,000 in 2001, in comparison to the corresponding period in 2000, mainly due to a 35% increase in retail deposits. Noninterest income at C1FN increased $621,000 over the first quarter of 2000. Other Expenses Other expenses for the quarter ended March 31, 2001 was $16.8 million or $3.4 million above the first quarter of 2000. This increase, associated with salary related expenses and premises and equipment expenses, relate to the opening four new retail offices and startup expenses for two new subsidiaries, WNF and C1FN. These two subsidiaries added approximately $2.2 million in additional expenses to the consolidated results compared to the first quarter of 2000. Also during the first quarter of 2001 a $421,000 ATM fraud loss was recorded. This loss related to missing or misappropriated funds related to an armored car carrier engaged to supply cash to ATM's operated by customers of Cash Connect, the ATM division of WSFS. 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 2001 of $1.7 million compared to $1.3 million for the same period in 2000. The effective tax rates for the first quarter of 2001 and 2000 were 31% and 25%, respectively. These effective rates reflect the recognition in the financial statements of certain tax benefits, including the benefits related to the reverse mortgage portfolio, and the fifty-percent interest income exclusion on an ESOP loan. The Corporation analyzes its projections of taxable income on an ongoing basis and makes adjustments to its provision for income taxes accordingly. Cumulative Effect of a Change in Accounting Principle 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. In addition, the difference at January 1, 2000 between the fair value and carrying value of $1.8 million, net of tax, relating to an interest rate cap is included in comprehensive income as a cumulative change in accounting principle. -19-
SEGMENT INFORMATION Under the definition of SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" the Corporation has three operating segments at March 31, 2001 and March 31, 2000: Wilmington Savings Fund Society, FSB (WSFS), CustomerOne Financial Network, Inc. (C1FN) and Wilmington National Finance, Inc. (WNF). C1FN and WNF are not wholly-owned, but are majority-controlled subsidiaries that began operations in 1999. As majority-controlled subsidiaries, they are included in the consolidated financial statements, including segment reporting. The operations of WSFS Credit Corporation (WCC), which provided auto loans and leases indirectly through unrelated auto dealerships within the Mid-Atlantic region, was discontinued in 2000 and therefore is no longer defined as a business segment. The segment information for 2000 has been restated, accordingly. The WSFS segment provides financial products within its geographical footprint through its branch network to consumer and commercial customers. The C1FN segment provides direct-to-customer marketing, servicing and Internet development and technology management for "branchless" financial services. C1FN received an additional investment in December 2000, which reduced WSFS' ownership from 42% to 29%. WSFS retains majority control WSFS of C1FN through a voting trust. WSFS and C1FN are engaged in a joint effort through a division of WSFS, everbank.com, to provide internet banking on a national level. The WNF segment, a 51% owned subsidiary, which began operations in December 1999, is engaged in sub-prime home equity lending. WNF expanded sales on a national level and now aggregates loans primarily through brokers and sells them to investors. 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, 2001 and 2000 follow: -20-
<TABLE> <CAPTION> For the Three Months Ended March 31, ------------------------------------------------------------------------------------------- 2001 2000 ------------------------------------------- -------------------------------------------- (In Thousands) WSFS C1FN WNF Total WSFS C1FN WNF Total ---- ---- --- ----- ---- ---- --- ----- <S> <C> <C> <C> <C> <C> <C> <C> <C> External customer revenues: Interest income $ 25,517 $ 3,515 $ 586 $ 29,618 $ 34,126 $ 366 $ - $ 34,492 Other income 4,626 633 2,791 8,050 886 12 189 1,087 ---------- -------- ------- ---------- ---------- ------- ------ ---------- Total external customer revenues 30,143 4,148 3,377 37,668 35,012 378 189 35,579 ---------- -------- ------- ---------- ---------- ------- ------ ---------- Intersegment revenues: Interest income 417 0 14 431 - - 20 20 Other income 120 0 0 120 60 - - 60 ---------- -------- ------- ---------- ---------- ------- ------ ---------- Total Intersegment revenues 537 0 14 551 60 - 20 80 ---------- -------- ------- ---------- ---------- ------- ------ ---------- Total revenue 30,680 4,148 3,391 38,219 35,072 378 209 35,659 External customer expenses: Interest expense 13,201 2,591 2 15,794 15,603 214 9 15,826 Other expenses 11,282 2,399 2,587 16,268 10,005 1,643 1,168 12,816 Other depreciation and amortization 774 90 68 932 687 100 25 812 ---------- -------- ------- ---------- ---------- ------- ------ ---------- Total external customer expenses 25,257 5,080 2,657 32,994 26,295 1,957 1,202 29,454 ---------- -------- ------- ---------- ---------- ------- ------ ---------- Intersegment expenses: Interest expense 14 0 417 431 20 - - 20 Other expenses 0 120 0 120 - 60 - 60 ---------- -------- ------- ---------- ---------- ------- ------ ---------- Total Intersegment expenses 14 120 417 551 20 60 - 80 ---------- -------- ------- ---------- ---------- ------- ------ ---------- Total expenses 25,271 5,200 3,074 33,545 26,315 2,017 1,202 29,534 Income before taxes and extraordinary item $ 5,409 $ (1,052) $ 317 $ 4,674 $ 8,757 $(1,639) $ (993) $ 6,125 ---------- -------- ------- ---------- ---------- ------- ------ ---------- Minority Interest (747) (1,231) Provision for income taxes 1,701 2,096 Loss on disposal of discontinued operations - - Income from discontinued operations - 134 Cumulative effect of change in accounting principle - (1,256) ---------- ---------- Consolidated net income $ 3,720 $ 4,138 ========== ========== Segment assets $1,557,009 $245,854 $33,608 $1,836,471 $1,597,559 $45,724 $3,612 $1,646,895 Elimination intersegment receivables (39,747) (9,462) ---------- ---------- Consolidated assets $1,796,724 $1,637,433 ========== ========== Capital expenditures $ 618 $ 173 $ 42 $ 833 $ 731 $ 894 $ 70 $ 1,695 </TABLE> -21-
RECENT ACCOUNTING PRONOUNCEMENTS In September 2000, the Financial Accounting Standards Board (FASB) issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement supercedes and replaces the guidance in Statement 125. It revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain disclosures, although it carries over most of Statement 125's provisions without reconsideration. The Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001 and for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. This Statement is to be applied prospectively with certain exceptions. Other than those exceptions, earlier retroactive application of its accounting provisions is not permitted. There was no material impact, based upon this Statement, to the Company's financial condition, equity, results of operations, or disclosures. 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 ---------------------------------------------------------- Incorporated herein by reference from Item 2, of this quarterly report on Form 10-Q. 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 26, 2001, all of the nominees for director proposed by the Corporation were elected. The votes cast for each nominee were as follows: For Withheld --- -------- John F. Downey 7,908,118 117,292 Thomas P. Preston 7,907,251 118,159 Marvin N. Schoenhals 7,722,323 303,087 R. Ted Weschler 7,908,104 117,306 Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) None. -22-
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, 2001 /s/ MARVIN N. SCHOENHALS ----------------------------------- Marvin N. Schoenhals Chairman, President and Chief Executive Officer Date: May 11, 2001 /s/ MARK A. TURNER ----------------------------------- Mark A. Turner Chief Operating Officer and Chief Financial Officer -23-