-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UIoSk7sB5h30GM446CUnxZlz4SjaGzn3623TJLS7miZlUxqTiO5Yv3NyWoLcshjl yoqTiFlCZX7m+yzXNhG+pA== 0000950116-99-000982.txt : 19990514 0000950116-99-000982.hdr.sgml : 19990514 ACCESSION NUMBER: 0000950116-99-000982 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WSFS FINANCIAL CORP CENTRAL INDEX KEY: 0000828944 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 222866913 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16668 FILM NUMBER: 99620147 BUSINESS ADDRESS: STREET 1: 838 MARKET ST CITY: WILMINGTON STATE: DE ZIP: 19899 BUSINESS PHONE: 3027926000 MAIL ADDRESS: STREET 1: 838 MARKET STREET CITY: WILMINGTON STATE: DE ZIP: 19899 FORMER COMPANY: FORMER CONFORMED NAME: STAR STATES CORP DATE OF NAME CHANGE: 19920703 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 ------------------------------------------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________________ to ___________________ Commission File Number 0-16668 ------- WSFS FINANCIAL CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 22-2866913 - ---------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 838 Market Street, Wilmington, Delaware 19899 - ------------------------------------------ ----------------------------- (Address of principal executive offices) (Zip Code) (302) 792-6000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 7, 1999: Common Stock, par value $.01 per share 11,255,568 - -------------------------------------- -------------------- (Title of Class) (Shares Outstanding) 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, 1999 and 1998 (Unaudited).......................................... 3 Consolidated Statement of Condition as of March 31, 1999 (Unaudited) and December 31, 1998.................................................. 4 Consolidated Statement of Cash Flows for the Three Months Ended March 31, 1999 and 1998 (Unaudited)................................................ 5 Notes to the Consolidated Financial Statements for the Three Months Ended March 31, 1999 and 1998 (Unaudited).................................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................... 7 ------------------------- Item 3. Quantitative and Qualitative Disclosures About Market Risk ........................ 16 ----------------------------------------------------------- PART II. Other Information Item 4. Submission of Matters to a Vote of Security Holders................................ 17 --------------------------------------------------- Item 6. Exhibits and Reports on Form 8-K................................................... 17 -------------------------------- Signatures ................................................................................... 18
-2- WSFS FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended March 31, ---------------------------------- 1999 1998 -------- ------- (Unaudited) (Dollars in thousands, except per share data) Interest income: Interest and fees on loans...................................................... $ 16,327 $ 17,546 Interest on mortgage-backed securities.......................................... 8,012 5,884 Interest and dividends on investment securities ................................ 578 1,066 Other interest income .......................................................... 2,272 2,566 -------- ---------- 27,189 27,062 -------- ---------- Interest expense: Interest on deposits ........................................................... 8,038 7,829 Interest on Federal Home Loan Bank advances .................................... 6,499 5,649 Interest on federal funds purchased and securities sold under agreements to repurchase................................................ 2,112 2,935 Interest on senior notes and trust preferred borrowings......................... 987 829 Interest on other borrowed funds................................................ 94 78 -------- ---------- 17,730 17,320 Net interest income ............................................................ 9,459 9,742 Provision for loan losses ...................................................... 263 577 -------- ---------- Net interest income after provision for loan losses ............................ 9,196 9,165 -------- ---------- Other income: Loan and lease servicing fees .................................................. 833 894 Rental income on operating leases, net ......................................... 3,372 2,880 Deposit service charges ........................................................ 1,211 984 Credit/debit card and ATM income................................................ 679 538 Securities gains ............................................................... 1 39 Other income ................................................................... 475 662 -------- ---------- 6,571 5,997 -------- ---------- Other expenses: Salaries, benefits and other compensation ...................................... 4,582 4,243 Equipment expense............................................................... 710 428 Data processing and operations expense ......................................... 1,335 1,261 Occupancy expense............................................................... 789 730 Marketing expense............................................................... 333 272 Professional fees............................................................... 353 415 Net costs of assets acquired through foreclosure ............................... 25 307 Other operating expense ........................................................ 1,706 1,518 -------- ---------- 9,833 9,174 -------- ---------- Income before taxes ............................................................ 5,934 5,988 Income tax provision ........................................................... 1,543 1,557 -------- ---------- Net income ..................................................................... $ 4,391 $ 4,431 ======== ========== Earnings per share: Basic...................................................................... $ .38 $ .36 Diluted.................................................................... .38 .35 Other comprehensive income, net of tax: Net income ................................................................. $ 4,391 $ 4,431 Net unrealized holding losses on securities available-for-sale arising during the period ............................ (508) (144) Less: reclassification adjustment for gains included in net income................................................... 1 39 -------- ---------- Comprehensive income ........................................................... $ 3,882 $ 4,248 ======== ==========
The accompanying notes are an integral part of these financial statements. -3- WSFS FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CONDITION
March 31, December 31, 1999 1998 --------- ------------ (Unaudited) (Dollars in thousands) Assets Cash and due from banks......................................................... $ 50,274 $ 55,848 Federal funds sold and securities purchased under agreements to resell.......... 28,900 20,900 Interest-bearing deposits in other banks ....................................... 3,138 7,518 Investment securities held-to-maturity ......................................... 6,670 7,642 Investment securities available-for-sale ....................................... 30,078 30,219 Mortgage-backed securities held-to-maturity .................................... 299,149 265,858 Mortgage-backed securities available-for-sale .................................. 222,096 193,226 Investment in reverse mortgages, net ........................................... 31,495 31,293 Loans held-for-sale ............................................................ 2,375 3,084 Loans, net allowance for loan losses of $23,540 at March 31, 1999 and $23,689 at December 31, 1998 ............................................ 749,313 760,584 Vehicles under operating leases, net ........................................... 212,449 199,967 Stock in Federal Home Loan Bank of Pittsburgh, at cost.......................... 26,250 23,000 Assets acquired through foreclosure ............................................ 1,136 2,993 Premises and equipment ......................................................... 12,652 11,919 Accrued interest and other assets .............................................. 22,514 21,659 ---------- ---------- Total assets.................................................................... $1,698,489 $1,635,710 ========== ========== Liabilities and Stockholders' Equity Liabilities: Deposits: Noninterest-bearing demand................................................... $ 108,490 $ 108,418 Money market and interest-bearing demand..................................... 72,409 68,208 Savings...................................................................... 229,280 218,334 Time......................................................................... 316,069 333,419 ---------- ---------- Total retail deposits..................................................... 726,248 728,379 Jumbo certificates of deposit................................................ 74,368 65,453 Brokered certificates of deposit............................................. 114,374 64,468 ---------- ---------- Total deposits............................................................ 914,990 858,300 Federal funds purchased and securities sold under agreements to repurchase ..... 135,000 153,505 Federal Home Loan Bank advances ................................................ 475,000 460,000 Senior notes and trust preferred borrowings..................................... 50,000 50,000 Other borrowed funds............................................................ 8,853 8,904 Accrued expenses and other liabilities ......................................... 26,880 19,249 ---------- ---------- Total liabilities .............................................................. 1,610,723 1,549,958 ---------- ---------- Commitments and contingencies Stockholders' Equity: Serial preferred stock $.01 par value, 7,500,000 shares authorized; none issued and outstanding................................................................. - - Common stock $.01 par value, 20,000,000 shares authorized; issued 14,727,557 at March 31, 1999 and 14,695,688 at December 31, 1998.......................... 147 147 Capital in excess of par........................................................ 57,797 57,696 Accumulated other comprehensive income.......................................... (273) 236 Retained earnings .............................................................. 68,702 64,657 Treasury stock at cost, 3,288,269 shares at March 31, 1999 and 3,192,769 at December 31, 1998........................................................... (38,607) (36,984) ---------- ---------- Total stockholders' equity ..................................................... 87,766 85,752 ---------- ---------- Total liabilities and stockholders' equity ..................................... $1,698,489 $1,635,710 ========== ==========
The accompanying notes are an integral part of these financial statements. -4- WSFS FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31, ---------------------------- 1999 1998 -------- ---- (Unaudited) (Dollars in thousands) Operating activities: Net income ............................................................. $ 4,391 $ 4,431 Adjustments to reconcile net income to cash provided by operating activities: Provision for loan, lease and residual value losses .................. 767 743 Depreciation, accretion and amortization ............................. 572 40 Decrease (increase) in accrued interest receivable and other assets... (1,081) 1,017 Origination of loans held-for-sale.................................... (10,496) (12,304) Proceeds from sales of loans held-for-sale............................ 11,209 10,557 Increase in accrued interest payable and other liabilities............ 7,576 4,308 Increase in reverse mortgage capitalized interest, net ............... (1,491) (1,506) Other, net ........................................................... 78 (261) -------- --------- Net cash provided by operating activities.................................. $ 11,525 $ 7,025 -------- --------- Investing activities: Net decrease in interest-bearing deposits in other banks ............... 4,380 8,091 Maturities of investment securities .................................... 1,003 26,766 Sales of investment securities available-for-sale ...................... - 20,059 Purchases of investment securities held-to-maturity .................... - (10,000) Repayments of mortgage-backed securities held-to-maturity .............. 41,471 33,745 Repayments of mortgage-backed securities available-for-sale ............ 19,866 7,078 Purchases of mortgage-backed securities held-to-maturity................ (74,786) (44,956) Purchases of mortgage-backed securities available-for-sale.............. (49,385) (54,285) Repayments of reverse mortgages ........................................ 3,644 3,944 Disbursements for reverse mortgages .................................... (2,310) (2,559) Sales of loans.......................................................... - 11,483 Purchase of loans ...................................................... (3,245) (2,059) Net decrease in loans .................................................. 14,040 24,936 Net increase in operating leases........................................ (16,195) (1,828) Net increase in stock of Federal Home Loan Bank of Pittsburgh .......... (3,250) (248) Sales of assets acquired through foreclosure, net....................... 5,853 3,285 Premises and equipment, net............................................. (1,300) (921) -------- --------- Net cash provided by (used for ) for investing activities............... (60,214) 22,531 -------- --------- Financing activities: Net increase in demand and savings deposits ........................... 15,168 11,165 Net increase (decrease) in time deposits ............................... 41,394 (4,827) Receipts from FHLB borrowings .......................................... 65,000 469,000 Repayments of FHLB borrowings........................................... (50,000) (459,000) Receipts from reverse repurchase agreements ............................ 17,270 69,837 Repayments of reverse repurchase agreements ............................ (35,775) (75,606) Dividends paid on common stock.......................................... (346) - Issuance of common stock ............................................... 27 - Purchase treasury stock ................................................ (1,623) - -------- --------- Net cash provided by financing activities................................... 51,115 10,569 -------- --------- Increase in cash and cash equivalents ...................................... 2,426 40,125 Cash and cash equivalents at beginning of period ........................... 76,748 52,746 -------- --------- Cash and cash equivalents at end of period ................................. $ 79,174 $ 92,871 ======== ========= Supplemental Disclosure of Cash Flow Information: Cash paid for interest during the year ..................................... $ 15,136 $ 14,680 Cash paid (refunded) for income taxes....................................... 437 (738) Loans and leases transferred to assets acquired through foreclosure ........ 3,382 2,228 Net change in unrealized gains (losses) on securities available-for-sale, net of tax (509) (183)
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, 1999 (UNAUDITED) 1. BASIS OF PRESENTATION WSFS Financial Corporation (the Corporation) is a thrift holding company headquartered in the state of Delaware. The Corporation has two wholly-owned subsidiaries, Wilmington Savings Fund Society, FSB, (the Bank or WSFS) a thrift conducting business in the Mid-Atlantic region and WSFS Capital Trust I, a company formed to issue Trust preferred securities to be invested in junior subordinated debt of the Corporation. The consolidated financial statements include the accounts of the parent company, WSFS Capital Trust I, the Bank and its wholly-owned subsidiaries, WSFS Credit Corporation (WCC), Community Credit Corporation (CCC), 838 Investment Group, Inc. and Star States Development Company, (SSDC). The consolidated statement of condition as of March 31, 1999, the consolidated statement of operations for the three months ended March 31, 1999 and 1998 and the consolidated statement of cash flows for the three months ended March 31, 1999 and 1998 are unaudited and include all adjustments solely of a normal recurring nature which management believes are necessary for a fair presentation. All significant intercompany transactions are eliminated in consolidation. Certain reclassifications have been made to prior period's financial statements to conform them to the March 31, 1999 presentation. The results of operations for the three month period ending March 31, 1999 are not necessarily indicative of the expected results for the full year ending December 31, 1999. The accompanying unaudited financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Corporation's 1998 Annual Report. 2. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
Three Months Ended March 31, ---------------------------- 1999 1998 ---- ---- Numerator: Net income.............................................................. $ 4,391 $ 4,431 ======== ======== Denominator: Denominator for basic earnings per share - weighted average shares ..... 11,467 12,463 Effect of dilutive securities: Employee stock options ............................................... 97 204 -------- -------- Denominator for diluted earnings per share - adjusted weighted average shares and assumed exercise of stock options.......................... 11,564 12,667 ======== ======== Basic earnings per share ................................................... $ .38 $ .36 ======== ======== Diluted earnings per share ................................................. $ .38 $ .35 ======== ========
-6- WSFS FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL WSFS Financial Corporation (the Corporation) is a savings and loan holding company headquartered in Wilmington, Delaware. Substantially all of the Corporation's assets are held by its subsidiary, Wilmington Savings Fund Society, FSB (the Bank or WSFS). The long-term goal of the Corporation is to be a high-performing, customer-centered financial services company focused on its core, banking business in Delaware, while developing unique, profitable niches in complementary businesses which may operate outside the Bank's geographical footprint. Founded in 1832, WSFS is one of the oldest financial institutions in the country. It has operated under the same name and charter serving the residents of Delaware for over 167 years. WSFS is the largest thrift institution headquartered in Delaware and is the fourth largest financial institution in the state on the basis of deposits traditionally garnered in-market. The Corporation's market area is the Mid-Atlantic region of the United States, characterized by a diversified manufacturing and service economy. The Bank provides cash management services as well as residential real estate, and commercial and consumer lending services, funding these credit activities by attracting retail deposits and borrowings. Deposits are insured by the Federal Deposit Insurance Corporation. WSFS also has the largest off-premise ATM network in the state of Delaware. Other operating subsidiaries of the Bank include WSFS Credit Corporation, engaged primarily in motor vehicle leasing; 838 Investment Group, Inc., which markets insurance products and securities; and Community Credit Corporation, a consumer finance company specializing in consumer loans secured by first and second mortgages. FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY Financial Condition Total assets increased $62.8 million during the first three months of 1999. Asset growth included increases of $62.2 million in mortgage-backed securities and $12.5 million in vehicles under operating leases. The increase in mortgage-backed securities reflect the purchase of $124.2 million in collateralized mortgage obligations, offset in part by principal repayments. Asset growth was partially offset by a decrease of $11.3 million in net loans. This decline reflects a $22.3 million decrease in commercial mortgages partially offset by a $10.1 million increase in residential mortgages. Total liabilities increased $60.8 million between December 31, 1998 and March 31, 1999. During the first quarter, total deposits grew by $56.7 million, the result of the influx of jumbo certificates of deposit and the acquisition of $49.9 million in brokered deposits. Interest credited to deposits totaled $4.4 million for a net deposit growth of $52.3 million. Capital Resources Stockholders' equity increased $2.0 million between December 31, 1998 and March 31, 1999. This increase reflects net income of $4.4 million for the quarter partially offset by a $508,000 increase in net unrealized holding losses on securities available-for-sale. In addition, treasury stock increased $1.6 million as a result of the purchase of 100,000 treasury shares, less the re-issuance of 4,500 shares of treasury stock to the Board of Directors as part of their annual retainer. At March 31, 1999, the Corporation held in its treasury 3,288,269 shares of its common stock at a cost of $38.6 million. -7- A table presenting the Bank's consolidated capital position relative to the minimum regulatory requirements as of March 31, 1999 (dollars in thousands):
To be Well-capitalized Consolidated For Capital Under Prompt Corrective Bank Capital Adequacy Purposes Action Provisions ----------------------- ------------------------ ------------------------ Amount Percentage Amount Percentage Assets Percentage ------ ---------- ------ ---------- ------ ---------- Total Capital (to Risk-Weighted Assets)......... $128,372 12.20% $84,166 8.00% $105,207 10.00% Core Capital (to Adjusted Tangible Assets) ................. 120,762 7.12 67,848 4.00 84,810 5.00 Tangible Capital (to Tangible Assets) .......................... 120,446 7.10 25,438 1.50 N/A N/A Tier 1 Capital (to Risk-Weighted Assets) .......................... 120,762 11.48 N/A N/A 63,124 6.00
Under Office of Thrift Supervision (OTS) capital regulations, savings institutions such as the Bank must maintain "tangible" capital equal to 1.5% of adjusted total assets, "core" capital equal to 4.0% of adjusted total assets and "total" or "risk-based" capital (a combination of core and "supplementary" capital) equal to 8.0% of risk-weighted assets. In addition, OTS regulations impose certain restrictions on savings associations that have a total risk-based capital ratio that is less than 8.0%, a ratio of tier 1 capital to risk-weighted assets of less than 4.0% or a ratio of tier 1 capital to adjusted total assets of less than 4.0% (or 3.0% if the institution is rated Composite 1 under the OTS examination rating system). For purposes of these regulations, tier 1 capital has the same definition as core capital. At March 31, 1999 the Bank is classified as a "well-capitalized" institution and is in compliance with all regulatory capital requirements. Management anticipates that the Bank will continue to be classified as well-capitalized. Liquidity The OTS requires institutions, such as the Bank, to maintain a 4.0% minimum liquidity ratio of cash and qualified assets to net withdrawable deposits and borrowings due within one year. At March 31, 1999, the Bank's liquidity ratio was 7.1% compared to 10.6% at December 31, 1998. Management monitors liquidity daily and maintains funding sources to meet unforeseen changes in cash requirements. It is the policy of the Bank to maintain cash and investments at least slightly above required levels. The Corporation's primary financing sources are deposits, repayments of loans and investment securities, sales of loans and borrowings. In addition, the Corporation's liquidity requirements can be accomplished through the use of its borrowing capacity from the FHLB of Pittsburgh, the sale of certain securities and the pledging of certain loans for other lines of credit. Management believes these sources are sufficient to maintain the required and prudent levels of liquidity. -8- 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.
March 31, December 31, 1999 1998 --------- ------------ Nonaccruing loans: Commercial .............................................. $ 2,384 $ 2,182 Consumer ................................................ 466 381 Commercial mortgages .................................... 2,268 2,383 Residential mortgages ................................... 3,449 3,068 Construction ............................................ - - ---------- ----------- Total nonaccruing loans ...................................... 8,567 8,014 Nonperforming investments in real estate ..................... 76 76 Assets acquired through foreclosure .......................... 1,136 2,993 ---------- ----------- Total nonperforming assets ................................... $ 9,779 $ 11,083 ========== =========== Restructured loans ........................................... $ - $ - ========== =========== Past due loans: Residential mortgages ................................... $ 78 $ 247 Commercial and commercial mortgages ..................... 2,255 2,654 Consumer ................................................ 102 86 ---------- ----------- Total past due loans ......................................... $ 2,435 $ 2,987 ========== =========== Ratios: Nonperforming loans/leases to total loans/leases (1) ..................................... .87% .81% Allowance for loan/lease losses to total gross Loans/leases (1)...................................... 2.49 2.49 Nonperforming assets to total assets .................... .58 .68 Loan loss/lease loss allowance to nonaccruing loans/leases (2)...................................... 287.72 307.97 Loan/lease and foreclosed asset allowance to total Nonperforming assets (2) .............................. 254.72 225.05
(1) Total loans exclude loans held for sale. (2) The applicable allowance represents general valuation allowances only. Nonperforming assets decreased $1.3 million between March 31, 1999 and December 31,1998. This decrease resulted primarily from a $1.9 million decline in assets acquired through foreclosure of which, $1.3 million related to a commercial property. This was offset in part by an increase of $553,000 in nonaccruing loans particularly residential mortgages and commercial loans. An analysis of the change in the balance of nonperforming assets is presented on the following page. -9-
Three Months Ended Year Ended March 31, December 31, 1999 1998 ------------- ----------- (In Thousands) Beginning balance......................................... $ 11,083 $ 13,892 Additions ........................................... 5,650 18,809 Collections ......................................... (6,348) (17,029) Transfers to accrual/restructured status ............ (434) (2,880) Provisions, charge-offs, other adjustments........... (172) (1,709) ---------- ----------- Ending balance ........................................... $ 9,779 $ 11,083 ========== ===========
The timely identification of problem loans is a key element in the Corporation's strategy to manage its loan portfolios. Timely identification enables the Corporation to take appropriate action and, accordingly, minimize losses. An asset review system which was established to monitor the asset quality of the Corporation's loans and investments in real estate portfolios facilitates the identification of problem assets. In general, this system utilizes guidelines established by federal regulation; however, there can be no assurance that the levels or the categories of problem loans and assets established by the Bank are the same as those which would result from a regulatory examination. INTEREST RATE SENSITIVITY The matching of maturities or repricing periods of interest rate-sensitive assets and liabilities to ensure a favorable interest rate spread and mitigate exposure to fluctuations in interest rates is the Corporation's primary focus for achieving its asset/liability management strategies. Interest rate-sensitive assets of the Corporation include cash flows that relate to the principal of the operating lease portfolio, which are interest-rate sensitive. The trust preferred borrowing is classified in the less than one-year category reflecting the variable rate feature of the instrument. An interest rate cap was purchased in 1998 in order to limit its interest rate risk exposure. Management regularly reviews interest-rate sensitivity of the Corporation and adjusts sensitivity within acceptable tolerance ranges established by management as needed. At March 31, 1999, interest-earning assets exceeded interest-bearing liabilities that mature within one year (interest-sensitivity gap) by $49.1 million. The Corporation's interest-sensitive assets as a percentage of interest-sensitive liabilities within the one-year window increased to 106.2% at March 31, 1999 compared to 97.6% at December 31, 1998. Likewise, the one-year interest-sensitive gap as a percentage of total assets increased to a positive 2.89% from a negative 1.21% at December 31, 1998. The change is the result of the Corporation's continuing effort to effectively manage interest rate risk. COMPARISON FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 Results of Operations The Corporation reported net income of $4.4 million, or $.38 per share (diluted), for the first three months of 1999, compared to $4.4 million or $.35 per share (diluted), for the same quarter last year. The improvement in earnings per share was the result of the stock repurchase program. At March 31, 1999. the Corporation held in its Treasury 3.3 million shares, compared with 2.2 million shares at March 31, 1998. Net Interest Income The table on the following page, dollars expressed in thousands, provides information concerning the balances, yields and rates on interest-earning assets and interest-bearing liabilities during the periods indicated. -10-
Three Months Ended March 31, -------------------------------------------------------------------------- 1999 1998 --------------------------------------- ------------------------------------ Average Yield/ Average Yield/ Balance Interest Rate(1) Balance Interest Rate (1) ------- -------- ------- ------- -------- -------- Assets Interest-earning assets: Loans (2) (3): Real estate loans (4)............ $ 523,127 $ 10,710 8.19% $ 524,017 $ 11,848 9.04% Commercial loans................. 93,371 1,665 8.34 89,191 1,780 9.36 Consumer loans................... 165,394 3,914 9.60 160,139 3,876 9.82 ----------- -------- ----------- --------- Total loans...................... 781,892 16,289 8.48 773,347 17,504 9.21 Mortgage-backed securities (5)........ 506,673 8,012 6.33 354,280 5,884 6.64 Loans held for sale (3)............... 2,163 38 7.03 1,901 42 8.84 Investment securities (5)............. 37,085 578 6.23 66,810 1,066 6.38 Other interest-earning assets ........ 80,581 2,272 11.28 98,506 2,566 10.42 ----------- -------- ----------- --------- Total interest-earning assets.... 1,408,394 27,189 7.80 1,294,844 27,062 8.46 -------- --------- Allowance for loan losses............. (23,648) (24,845) Cash and due from banks............... 51,286 21,565 Vehicles under operating lease, net .. 206,517 173,468 Other noninterest-earning assets...... 36,640 32,978 ----------- ----------- Total assets..................... $ 1,679,189 $ 1,498,010 =========== =========== Liabilities and Stockholders' Equity Interest-bearing liabilities: Interest-bearing deposits: Money market and interest- bearing demand................. $ 66,624 364 2.22 $ 59,695 381 2.59 Savings.......................... 219,475 1,611 2.98 172,411 1,304 3.07 Retail time deposits ............ 326,826 3,916 4.86 345,154 4,614 5.42 Jumbo certificates of deposit ... 77,844 1,015 5.29 33,361 469 5.70 Brokered certificates of deposits 71,400 1,132 6.43 64,384 1,061 6.68 ----------- -------- ----------- --------- Total interest-bearing deposits 762,169 8,038 4.28 675,005 7,829 4.70 FHLB of Pittsburgh advances........... 498,500 6,499 5.29 403,055 5,649 5.68 Senior notes and trust preferred borrowings......................... 50,000 987 7.90 29,100 829 11.39 Other borrowed funds.................. 159,996 2,206 5.52 206,323 3,013 5.84 ----------- -------- ----------- --------- Total interest-bearing liabilities 1,470,665 17,730 4.82 1,313,483 17,320 5.27 -------- --------- Noninterest-bearing demand deposits... 101,430 77,764 Other noninterest-bearing liabilities. 19,448 16,650 Stockholders' equity.................. 87,646 90,113 ----------- ----------- Total liabilities and stockholders' equity......................... $ 1,679,189 $ 1,498,010 =========== =========== Deficit of interest-earning assets over interest-bearing liabilities..... $ (62,271) $ (18,639) =========== =========== Net interest and dividend income...... $ 9,459 $ 9,742 ========= ========= Interest rate spread.................. 2.98% 3.19% ===== ===== Interest rate margin.................. 2.77% 3.10% ===== ===== Net interest and dividend income to total average assets............. 2.32% 2.68% ===== =====
(1) Weighted average yields have been computed on a tax-equivalent basis. (2) Nonperforming loans are included in average balance computations. (3) Balances are reflected net of unearned income. (4) Includes commercial mortgage loans. (5) Includes securities available-for-sale. -11- Net interest income decreased $283,000 between the three months ended March 31, 1999 and 1998. Total interest income increased $127,000, between 1999 and 1998 primarily due to the increase in mortgage-backed securities offset by the decline in interest rates. Investment in mortgage-backed securities increased on average by $152.4 million from the previous period. In addition, total average loans increased by $8.5 million between 1999 and 1998, however the declining interest rate environment reduced the yield on loans by 73 basis points. The yield on mortgage-backed securities declined from 6.64% to 6.33% over the same period. Total interest expense increased $410,000 between March 31, 1999 and 1998. The increase is attributed to growth in deposits and increased borrowings. Average interest-bearing deposits increased $87.2 million between 1999 and 1998, while average borrowings increased $70.0 million. The increase in borrowings included a $20.9 million increase due to the issuance of $50.0 million of trust preferred securities at the end of 1998. Partially offsetting the increase in volume is the decline in interest rates during 1999 The yield on interest-bearing deposits was reduced by 42 basis points to 4.28%from 4.70% between March 31, 1999 and 1998. The yield on total borrowings, including trust preferred, declined 48 basis points to 5.47% from 5.95% over the same period. Provision for Loan Losses The following table represents a summary of the changes in the allowance for loan losses during the periods indicated:
Three Months Ended Year Ended March 31, 1999 December 31, 1998 ---------------------- ----------------- (Dollars in Thousands) Beginning balance ............................................ $23,689 $24,850 Provision for loan losses .................................... 263 1,080 Charge-offs: Residential real estate ................................. 39 210 Commercial real estate (1) .............................. 183 608 Commercial............................................... - 648 Consumer ................................................ 257 1,153 ------- ------- Total charge-offs..................................... 479 2,619 ------- ------- Recoveries: Residential real estate ................................. - 12 Commercial real estate (1) .............................. 11 123 Commercial .............................................. 5 74 Consumer (2)............................................. 51 169 ------- ------- Total charge-offs .................................... 67 378 ------- ------- Net charge-offs .............................................. 412 2,241 ------- ------- Ending balance ............................................... $23,540 $23,689 ======= ======= Net charge-offs to average gross loans outstanding, net of unearned income (3)................................... .16% .29% ======= =======
(1) Includes commercial mortgages and construction loans. (2) Includes finance-type leases. (3) Ratio for the three months ended March 31, 1999 is annualized. The provision for loan losses decreased by $314,000 between the three months ended March 31, 1999 and 1998. These changes in the provision reflect management's continuing review of the loan portfolio. -12- Provision for Lease Losses The following table represents a summary of the changes in the allowance for lease credit losses during the periods indicated:
Three Months Ended Year Ended March 31, 1999 December 31, 1998 ---------------- ----------------- (Dollars in Thousands) Beginning balance ............................................ $ 992 $ 1,097 Provision for losses on vehicles under operating leases....... 216 547 Charge-offs................................................... 166 909 Recoveries ................................................... 67 257 --------- ---------- Net charge-offs .............................................. 99 652 --------- ---------- Ending balance ............................................... $ 1,109 $ 992 ========= ==========
Other Income Noninterest income increased $574,000, or 10% between the three months ended March 31, 1998 and 1999. This increase resulted primarily from net rental income on operating leases, which increased $492,000 between comparable quarters. The growth in rental income was attributable to a 12% increase in vehicles under operating leases between March 31, 1998 and 1999. In addition, deposit service charges increased $227,000 during the quarter ended March 31, 1998 in comparison to the quarter ended March 31, 1998, primarily due to increased fees along with the addition of five new branches. Credit/debit card and ATM fee income increased $141,000 between the first quarter of 1999 and 1998 due to expansion of the Bank's ATM network and increased usage of the Company's debit card. Partially offsetting these increases was a decrease in the other category of $187,000 between comparable quarters. This category for the first quarter of 1998 included a $368,000 one-time gain on sale of $10.5 million in mortgage loans, originated to comply with the Community Reinvestment Act. The decline period over period in the other category was partially offset by an increase in mutual fund sales commissions. Other Expenses Noninterest expenses increased $659,000 between the quarters ending March 31, 1998 and 1999. The increases which occurred in salaries, equipment, data processing and occupancy were primarily associated with new retail banking offices, ATMs and investments in technology. WSFS opened five retail banking offices in the last year for a total of 22. In addition, WSFS currently has 122 owned and operated ATMs, 22 more than this time last year. Partially offsetting these increases was a $282,000 decline in net costs of assets acquired through foreclosure, the result of lower foreclosed assets. Income Taxes The Corporation and its subsidiaries file a consolidated federal income tax return and separate state income tax returns. Income taxes are accounted for in accordance with SFAS No. 109 which requires the recording of deferred income taxes for the tax consequences of "temporary differences". The Corporation recorded a provision for income taxes during the first quarter of 1999 of $1.5 million compared to $1.6 million for the same period in 1998. The effective tax rate for the first quarter of 1999 and 1998 was 26% for each period. The Corporation analyzes its projections of taxable income on an ongoing basis and makes adjustments to its provision for income taxes accordingly. -13- ACCOUNTING DEVELOPMENTS In June 1998 the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of derivatives depends on the derivative and the resulting designation. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of certain foreign currency exposures. This Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Earlier adoption is permitted. The Company has not yet determined the impact, if any, of this Statement, including its provisions for the potential reclassifications of investment securities, on operations, financial condition or equity. YEAR 2000 Banking, by its nature, is a very data processing intensive industry. Year 2000 issues result from the inability of many computer programs or computerized equipment to accurately calculate, store or use a date after December 31, 1999. These potential shortcomings could result in a system failure or miscalculations causing disruptions of operation, including among other things, a temporary inability to process transactions, calculate interest payments, track important customer information, provide convenient access to this information, or engage in normal business operations. WSFS is subject to the regulation and supervision of various banking regulators, whose oversight includes providing specific timetables, programs and guidance regarding Year 2000 issues. Regulatory examination of the WSFS' Year 2000 programs are conducted periodically and reports are submitted by the Bank to the banking regulators and the Board of Directors on a periodic basis. WSFS has completed an assessment of its core financial and operational software systems and has found them already in compliance, or has developed a plan that is directed toward bringing non-complaint systems into compliance. Our Year 2000 Project Plan is in place and is progressing on schedule. A full year of intensive testing is scheduled during 1999. As of March 31, 1999 all of our internally maintained mission-critical systems have been renovated, tested, and installed in production, and renovation of our significant impact systems is substantially complete and testing is well underway. We have also taken a proactive approach in working with several financial industry service providers, such as ATM networks and card processors, to help increase the probability that WSFS customers will have uninterrupted service into the Year 2000. From a technology perspective, WSFS uses application software systems and receives technical support from one of the world's largest data processing providers to financial institutions, for nearly all of its critical customer accounting applications. This company has extensive resources dedicated at their corporate level to assist their financial institution customers, including WSFS, in the effort to become Year 2000 compliant. WSFS has installed system fixes for all of its major customer applications including Year 2000 compliant versions of its software. In addition, WSFS has replaced or upgraded all of its personal computers and tested this hardware for Year 2000 compliance. Plans have been developed and are being implemented to address and track compliance in other areas of the organization. The infrastructure plan addresses physical facilities, for example: building security systems, fire alarm systems, heating and air conditioning and business equipment, for example: fax machines, copiers, vaults, ATMs, postage machines and forms. Systems outside of the direct control of WSFS, such as ATM networks, credit card processors, and the Fed Wire System, pose a more problematic issue. A theoretical problem scenario could involve a temporary inability of customers to access their funds through automated teller machines, point of service terminals at retailer locations, or other shared networks. For this reason alone, banks and their governing agencies are closely scrutinizing the progress of our major industry service providers. -14- WSFS plans include a review of the Year 2000 efforts of our suppliers, vendors and other business relationships to encourage the timely resolution of product or service compliance issues. WSFS is currently developing contingencies for various Year 2000 problem scenarios. These contingency plans range from converting from third-party providers that we do not feel are adequately prepared for the Year 2000, to the temporary manual processing of certain critical applications, if necessary. A detailed remediation contingency plan for core applications was in place in early 1998. From a cost perspective, WSFS was already involved in upgrading its technology infrastructure and therefore, many potential Year 2000 issues were avoided by the replacement of old systems with new technology. As of March 31, 1999, WSFS has incurred expenses of $2.4 million related to the Year 2000 issue. WSFS anticipates spending an additional $500,000 in future periods. A large portion of costs associated with Year 2000 issues will be met from existing resources through a reprioritization of the technology department initiatives with the remainder representing incremental costs. WSFS believes the costs or the consequences of incomplete or untimely resolution of its Year 2000 issues do not represent a known material event or uncertainty that is reasonably likely to affect its future financial results, or cause its reported financial information not to be necessarily indicative of future operating results or future financial condition. However, if compliance is not achieved in a timely manner by WSFS or any of its significant related third-parties, be it a supplier of services or customer, the Year 2000 issue could possibly have a material effect on the Company's results of operations and financial position. Successful and timely completion of the Year 2000 project is based on management's best estimates, which were derived from numerous assumptions of future events, which are inherently uncertain, including the availability of certain resources, third party modification plans, and other factors. Many of the factors that would guarantee Year 2000 success are beyond the control of WSFS. These factors include availability of vendor compliant products, interface system partner compliance, government activity and client readiness. Because of the interconnectedness of the Year 2000 situation, WSFS cannot realistically offer any certifications, representations or guarantees. Nevertheless, WSFS has devoted substantial resources to the problem and describes its plan in this corporate statement. WSFS' Year 2000 initiative is an ongoing process. The information available in this document may be periodically updated and is subject to change without notice. This statement about WSFS' Year 2000 readiness is intended to supercede every statement that has been made previously Year 2000 readiness issues. FORWARD LOOKING STATEMENTS Within this report and financial statements we have included certain "forward looking statements" concerning the future operations of the Corporation. It is management's desire to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. This statement is for the express purpose of availing the Corporation of the protections of such safe harbor with respect to all "forward looking statements" contained in our financial statements and annual report. We have used "forward looking statements" to describe the future plans and strategies including our expectations of the Corporation's future financial results. Management's ability to predict results or the effect of future plans and strategy is inherently uncertain. Factors that could affect results include interest rate trends, competition, the general economic climate in Delaware, the mid-Atlantic region and the country as a whole, loan delinquency rates, and changes in federal and state regulation, among others. These factors should be considered in evaluating the "forward looking statements", and undue reliance should not be placed on such statements. -15- Item 3. Quantitative and Qualitative Disclosures About Market Risk Market risk is the risk of loss from adverse changes in market prices and rates. The Company's market risk arises primarily from interest rate risk inherent in its lending, investing and funding activities. To that end, management actively monitors and manages its interest rate risk exposure. One measure, required to be performed by OTS-regulated institutions, is the test specified by OTS Thrift Bulletin No. 13A, "Management of Interest Rate Risk, Investment Securities and Derivative Activities." This test measures the impact on net portfolio value of an immediate change in interest rates in 100 basis point increments. Net portfolio value is defined as the net present value of assets, liabilities, and off-balance sheet contracts. The chart below is the estimated impact of immediate changes in interest rates on net interest margin and net portfolio value at the specified levels at March 31, 1999 and 1998, calculated in compliance with Thrift Bulletin No. 13A:
March 31, --------------------------------------------------------------------- 1999 1998(1) -------------------------------- -------------------------------- Change in Interest % Change in % Change in % Change in % Change in Rate Net Interest Net Portfolio Net Portfolio Net Portfolio (Basis Points) Margin (2) Value (3) Margin (2) Value (3) ------------------ ------------ -------------- ------------- ------------- +300 3% -25% 3% -28% +200 2 -18 2 -19 +100 1 -9 1 -10 -100 -2 10 -1 11 -200 -3 21 -3 22 -300 -5 33 -5 35
(1) March 31, 1998 has been restated to reflect the interest-sensitive nature of the operating lease portfolio (2) This column represents the percentage difference between net interest margin in a stable interest rate environment and net interest margin as projected in the various rate increments. (3) This column represents the percentage difference between net portfolio value of the Company in a stable interest rate environment and the net portfolio value as projected in the various rate increments. The Company's primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on the Company's net interest income and capital, while maximizing the yield/cost spread on the Company's asset/liability structure. The Company relies primarily on its asset/liability structure to control interest rate risk. -16- Part II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the Corporation's Annual Stockholder's Meeting held on April 22, 1999, all of the nominees for director proposed by the Corporation were elected. The votes cast for each such nominee were as follows: For Withheld --------- -------- Charles G. Cheleden 9,462,772 95,938 Joseph R. Julian 9,464,270 94,440 Dale E. Wolf 9,463,336 95,374 Item 6. Exhibits and Reports on Form 8-K (a) None. (b) Report on Form 8-K, dated February 2, contained a press release announcing that the Board of Directors as authorized the repurchase of up to 1,150,000 shares, or approximately 10% of the Company's current outstanding shares of common stock from time to time in the open market or privately negotiated transactions. -17- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WSFS FINANCIAL CORPORATION Date: May 12, 1999 /s/ MARVIN N. SCHOENHALS ----------------------------------------------- Marvin N. Schoenhals Chairman, President and Chief Executive Officer Date: May 12, 1999 /s/ MARK A. TURNER ----------------------------------------------- Mark A. Turner Executive Vice President and Chief Financial Officer -18- EX-27 2 FINANCIAL DATA SCHEDULE
9 0000828944 WSFS FINANCIAL CORPORATION 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 50,274 3,138 28,900 0 252,174 305,819 0 775,228 23,540 1,698,489 914,990 143,853 26,880 525,000 0 0 19,337 68,429 1,698,489 16,327 8,590 2,272 27,189 8,038 17,730 9,459 263 1 9,833 5,934 5,934 0 0 4,391 0.38 0.38 7.80 8,567 2,435 0 0 23,689 479 67 23,540 23,540 0 0
-----END PRIVACY-ENHANCED MESSAGE-----