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 June 30, 2002
-------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-16668
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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 19801
- ------------------------------------------ -------------------
(Address of principal executive offices) (Zip Code)
(302) 792-6000
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(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 August 6, 2002:
Common Stock, par value $.01 per share 9,087,882
- -------------------------------------- -------------------
(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 and Six Months
Ended June 30, 2002 and 2001 (Unaudited)...................................... 3
Consolidated Statement of Condition as of June 30, 2002
(Unaudited) and December 31, 2001............................................. 5
Consolidated Statement of Cash Flows for the Six Months Ended
June 30, 2002 and 2001 (Unaudited)............................................ 6
Notes to the Consolidated Financial Statements for the Three and Six
Months Ended June 30, 2002 and 2001 (Unaudited)............................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations..................................................... 18
-------------------------
Item 3. Quantitative and Qualitative Disclosures About Market Risk...................... 33
----------------------------------------------------------
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 99.1 - Certification pursuant to 18 U.S.C. Section 1350........... 34
(b) None.
Signatures .............................................................................. 35
2
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Three months ended June 30, Six months ended June 30,
----------------------------- ----------- ------------
2002 2001 2002 2001
---- ---- ---- ----
(Unaudited)
(In Thousands, Except per Share data)
Interest income:
Interest and fees on loans...................... $ 20,173 $ 20,392 $ 40,159 $ 40,756
Interest on mortgage-backed securities.......... 2,186 2,630 3,817 5,503
Interest and dividends on investment securities. 218 286 455 582
Interest on investments in reverse mortgages.... 4,103 3,150 11,097 4,934
Other interest income........................... 201 538 547 1,153
---------- ---------- ----------- ----------
26,881 26,996 56,075 52,928
---------- ---------- ----------- ----------
Interest expense:
Interest on deposits............................ 2,896 6,986 6,142 15,040
Interest on Federal Home Loan Bank advances..... 4,603 3,347 9,131 6,553
Interest on federal funds purchased and securities
sold under agreement to repurchase......... 714 835 1,250 1,644
Interest on Trust Preferred borrowings.......... 850 804 1,486 1,768
Interest on other borrowings ................... 101 85 201 212
---------- ---------- ----------- ----------
9,164 12,057 18,210 25,217
---------- ---------- ----------- ----------
Net interest income.................................. 17,717 14,939 37,865 27,711
Provision for loan losses............................ 504 400 1,211 692
---------- ---------- ----------- ----------
Net interest income after provision for loan losses.. 17,213 14,539 36,654 27,019
---------- ---------- ----------- ----------
Other income:
Loan servicing fee income ...................... 768 770 1,559 1,395
Deposit service charges......................... 2,186 2,169 4,211 4,101
Credit/debit card and ATM income ............... 2,052 1,737 3,700 3,210
Gain on sales of loans ......................... 13,750 4,125 25,413 7,001
Other income.................................... 650 572 1,196 1,061
---------- ---------- ----------- ----------
19,406 9,373 36,079 16,768
---------- ---------- ----------- ----------
Other expenses:
Salaries, benefits and other compensation....... 12,590 8,556 24,838 16,076
Equipment expense............................... 1,201 1,017 2,394 1,883
Data processing and operations expenses......... 947 903 1,842 1,832
Occupancy expense............................... 1,217 1,222 2,335 2,426
Marketing expense............................... 454 398 890 815
Professional fees............................... 1,254 430 2,128 857
Net costs of assets acquired through foreclosure 23 27 53 72
ATM fraud (recovery) loss....................... (33) (53) (231) 368
In-store branch net write off................... - 1,114 - 1,114
Other operating expense......................... 2,431 3,020 5,111 5,187
---------- ---------- ----------- ----------
20,084 16,634 39,360 30,630
---------- ---------- ----------- ----------
Income from continuing operations before
minority interest, taxes and cumulative effect
of change in accounting principle 16,535 7,278 33,373 13,157
Less minority interest............................... 3,362 - 6,048 -
---------- ----------- ----------- -----------
Income from continuing operations before taxes and
cumulative effect of change
in accounting principle.................... 13,173 7,278 27,325 13,157
Income tax provision................................. 4,901 2,327 10,178 4,211
---------- ---------- ----------- ----------
Income from continuing operations before cumulative
effect of change in accounting principle... 8,272 4,951 17,147 8,946
Cumulative effect of change in accounting principle,
net of $469,000 in tax.................... - - 703 -
----------- --------- ----------- ----------
Income from continuing operations ................... 8,272 4,951 17,850 8,946
Loss on discontinued operations of businesses
held-for-sale.............................. (351) (245) (503) (520)
---------- ---------- ----------- ----------
Net income........................................... $ 7,921 $ 4,706 $ 17,347 $ 8,426
========== ========== =========== ==========
3
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (Continued)
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
(Unaudited)
(In Thousands, Except per Share data)
Basic earnings per share:
Income from continuing operations before
cumulative effect of
change in accounting principle ............... $ 0.91 $ 0.51 $ 1.88 $ 0.90
Cumulative effect of change in accounting principle,
net of tax.................................... - - 0.08 -
-------- -------- -------- --------
Income from continuing operations ................... 0.91 0.51 1.96 0.90
Loss on discontinued operations of businesses
held-for-sale................................. (0.04) (0.03) (0.06) (0.05)
-------- -------- -------- --------
Net income .......................................... $ 0.87 $ 0.48 $ 1.90 $ 0.85
======== ======== ======== ========
Diluted earnings per share:
Income from continuing operations before
cumulative effect of
change in accounting principle ............... $ 0.88 $ 0.50 $ 1.82 $ 0.89
Cumulative effect of change in accounting
principle, net of tax......................... - - 0.08 -
-------- -------- -------- --------
Income from continuing operations ................... 0.88 0.50 1.90 0.89
Loss on discontinued operations of businesses
held-for-sale................................. (0.04) (0.02) (0.05) (0.05)
-------- -------- -------- --------
Net income .......................................... $ 0.84 $ 0.48 $ 1.85 $ 0.84
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
4
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
June 30, December 31,
2002 2001
------------ ------------
(Unaudited)
Assets (In Thousands)
Cash and due from banks................................................ $ 134,295 $ 104,813
Federal funds sold and securities purchased under agreements to resell. 45,100 65,779
Interest-bearing deposits in other banks............................... 669 28,360
Investment securities held-to-maturity................................. 11,677 12,396
Investment securities available-for-sale............................... - 1,798
Mortgage-backed securities held-to-maturity............................ 51,135 70,285
Mortgage-backed securities available-for-sale.......................... 91,738 291,439
Investments of businesses held-for-sale................................ 288,333 -
Investment in reverse mortgages, net................................... 36,018 33,939
Loans held-for-sale.................................................... 87,168 84,741
Loans, net of allowance for loan losses of $21,283 at June 30, 2002
and $21,597 at December 31, 2001................................... 1,014,174 1,030,631
Loans of businesses held-for-sale, net of allowance for loan losses
of $338 at June 30, 2002........................................... 36,330 -
Stock in Federal Home Loan Bank of Pittsburgh, at cost................. 23,250 28,750
Assets acquired through foreclosure.................................... 1,005 432
Premises and equipment................................................. 14,661 16,438
Accrued interest and other assets...................................... 22,102 28,824
Other assets of businesses held-for-sale............................... 7,414 -
Loans, operating leases and other assets of discontinued operations.... 78,708 115,295
----------- ----------
Total assets........................................................... $ 1,943,777 $1,913,920
=========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing demand......................................... $ 176,605 $ 171,801
Money market and interest-bearing demand........................... 94,859 327,635
Savings............................................................ 311,541 313,246
Time............................................................... 246,724 303,059
Jumbo certificates of deposit - retail............................. - 9,695
----------- ----------
Total retail deposits............................................ 829,729 1,125,436
Jumbo certificates of deposit - other.............................. 12,905 12,334
Brokered certificates of deposit................................... - 8,347
----------- ----------
Total deposits excluding businesses held-for-sale................ 842,634 1,146,117
Deposits of businesses held-for-sale............................... 321,356 -
----------- ----------
Total deposits.................................................. 1,163,990 1,146,117
Federal funds purchased and securities sold under agreements
to repurchase...................................................... 94,000 45,000
Federal Home Loan Bank advances........................................ 460,000 520,000
Trust Preferred borrowings............................................. 50,000 50,000
Other borrowed funds................................................... 36,843 30,480
Accrued expenses and other liabilities................................. 15,930 16,519
Other liabilities of businesses held-for-sale.......................... 1,390 -
----------- ----------
Total liabilities...................................................... 1,822,153 1,808,116
----------- ----------
Minority Interest...................................................... 6,531 5,801
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
14,829,251 at June 30, 2002 and 14,823,651 at December 31, 2001.... 148 148
Capital in excess of par value......................................... 59,189 59,079
Accumulated other comprehensive income ................................ 2,951 3,146
Retained earnings ..................................................... 124,480 107,950
Treasury stock at cost, 5,745,269 shares at June 30, 2002 and 5,677,169
shares at December 31, 2001 ....................................... (71,675) (70,320)
----------- ----------
Total stockholders' equity............................................. 115,093 100,003
----------- ----------
Total liabilities, minority interest and stockholders' equity.......... $ 1,943,777 $1,913,920
=========== ==========
The accompanying notes are an integral part of these financial statements.
5
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
2002 2001
----------- ------------
(Unaudited)
(In Thousands)
Operating activities:
Net income ................................................................. $ 17,347 $ 8,426
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Provision for loan, lease and residual value losses..................... 1,357 845
Depreciation, accretion and amortization ............................... 3,622 1,750
Decrease (increase) in accrued interest receivable and other assets..... 1,304 (1,769)
Increase in accrued interest receivable and other assets of businesses
held-for-sale........................................................ (1,634) -
Origination of loans held-for-sale...................................... (654,796) (227,924)
Proceeds from sales of loans held-for-sale.............................. 647,971 215,883
Increase in accrued interest payable and other liabilities.............. 567 4,289
Increase in accrued interest payable and other liabilities of
businesses held-for-sale............................................. 197 -
Increase in reverse mortgage capitalized interest, net ................. (12,263) (4,852)
Minority interest in net income(loss)................................... 4,355 (1,500)
Other, net ............................................................. 76 71
----------- ----------
Net cash provided by or (used for) operating activities..................... 8,103 (4,781)
----------- ----------
Investing activities:
Net decrease (increase) in interest-bearing deposits in other banks ........ 8,696 (7,155)
Maturities of investment securities ........................................ 843 11,429
Sales of investment securities available-for-sale .......................... 1,485 500
Repayments of mortgage-backed securities held-to-maturity .................. 18,893 14,241
Repayments of mortgage-backed securities available-for-sale ................ 18,651 88,376
Purchases of mortgage-backed securities available-for-sale.................. (59,093) (151,157)
Net increase in investments of businesses held-for-sale..................... (30,710) -
Repayments of reverse mortgages ............................................ 14,564 8,823
Disbursements for reverse mortgages ........................................ (3,209) (3,627)
Sales of loans.............................................................. 5,986 -
Purchase of loans .......................................................... (22,868) (7,181)
Net increase in loans ...................................................... (644) (18,280)
Net increase in loans of businesses held-for-sale.......................... (302) -
Net decrease in stock of Federal Home Loan Bank of Pittsburgh............... 5,500 8,700
Receipts from investment in real estate .................................... - 270
Sales of assets acquired through foreclosure, net........................... 288 481
Premises and equipment, net................................................. (1,517) (1,458)
----------- ----------
Net cash used for investing activities...................................... (43,437) (56,038)
----------- ----------
Financing activities:
Net increase in demand and savings deposits................................. 21,158 101,059
Net decrease in time deposits .............................................. (19,965) (53,632)
Net increase in deposits of businessess held-for-sale....................... 23,186 -
Receipts from FHLB borrowings .............................................. 391,000 165,000
Repayments of FHLB borrowings............................................... (451,000) (120,000)
Receipts from reverse repurchase agreements................................. 95,000 -
Repayments of reverse repurchase agreements................................. (80,000) -
Net increase in federal funds purchased..................................... 34,000 -
Repayments of capital leases................................................ (142) (56)
Dividends paid on common stock.............................................. (817) (802)
Issuance of common stock ................................................... 110 6
Purchase of treasury stock, net of reissuance............................... (1,355) (12,944)
Minority interest........................................................... (3,625) (27)
----------- ----------
Net cash provided by financing activities................................... 7,550 78,604
----------- ----------
(Decrease) increase in cash and cash equivalents from continuing operations. (27,784) 17,785
Change in net assets from discontinued operations .......................... 36,587 38,800
Cash and cash equivalents at beginning of period ........................... 170,592 91,349
----------- ----------
Cash and cash equivalents at end of period ................................. $ 179,395 $ 147,934
=========== ==========
6
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
Six Months Ended June 30,
--------------------------------------
2002 2001
----------- ----------
Supplemental Disclosure of Cash Flow Information:
- -------------------------------------------------
Cash paid for interest ..................................................... $ 19,698 $ 29,219
Cash paid for income taxes, net............................................. 10,024 2,131
Loans transferred to assets acquired through foreclosure ................... 872 507
Net change in unrealized (losses) gains on securities available-for-sale,
net of tax............................................................ (195) 2,285
Investments transferred to businesses held-for-sale......................... 260,160 -
Loans, net of allowance transferred to businesses held-for-sale............. 36,135 -
Other assets transferred to businesses held-for-sale........................ 5,780 -
Deposits transferred to businesses held-for-sale............................ 298,170 -
Other liabilities transferred to businesses held-for-sale................... 1,193 -
The accompanying notes are an integral part of these financial statements.
7
WSFS FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(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, WSFS
Investment Group, Inc., formerly 838 Investment Group, Inc., and Star States
Development Company (SSDC) as well as non-wholly-owned, but majority controlled
subsidiaries, Wilmington Finance, Inc. (WF), formerly Wilmington National
Finance, Inc., and CustomerOne Financial Network, Inc. (C1FN). See Note 5 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, and presented
separately for all periods.
As discussed in Note 4 of the financial statements, in June 2002,
agreements were signed to sell C1FN and the related interest in WSFS' Everbank
Division. In addition, in June 2002 WSFS signed an agreement for the sale of its
United Asian Bank Division. In accordance with Statement of Financial Accounting
Standard (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, the major classes of assets and liabilities of C1FN/Everbank and United
Asian Bank Division are presented separately on the statement of condition for
June 30, 2002, the statement of cash flow for the six months ended June 30,
2002. Losses from these businesses have been presented as Losses of businesses
held-for-sale, and presented separately for all periods. The average balance
sheet is presented with all major assets and liabilities displayed separately.
The consolidated statement of condition at June 30, 2002, the consolidated
statement of operations for the three and six months ended June 30, 2002 and
2001 and the consolidated statement of cash flows for the six months ended June
30, 2002 and 2001 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 prior year's 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- and six-month period ended June 30, 2002 are not
necessarily indicative of the expected results for the full year ending December
31, 2002. 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 2001 Annual Report.
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
For the three months For the six months
ended June 30, ended June 30,
-------------------- ------------------
2002 2001 2002 2001
------- ------- ------- --------
(Dollars in Thousands)
Numerator:
Income from continuing operations before cumulative effect of change
in accounting principle.................................................. $8,272 $4,951 $17,147 $8,946
Cumulative effect of change in accounting principle, net of $469,000 in tax. - - 703 -
------ ------ ------- -------
Income from continuing operations........................................... 8,272 4,951 17,850 8,946
Loss on businesses held-for-sale............................................ (351) (245) (503) (520)
------ ------ ------- -------
Net income ................................................................. $7,921 $4,706 $17,347 $ 8,426
====== ====== ======= =======
Denominator:
Denominator for basic earnings per share - weighted average shares.......... 9,097 9,764 9,115 9,940
Employee stock options...................................................... 364 75 286 67
------ ------ ------- -------
Denominator for diluted earnings per share - adjusted weighted average
shares and assumed exercise ............................................. 9,461 9,839 9,401 $10,007
====== ====== ======= =======
8
2. EARNINGS PER SHARE (continued)
For the three months For the six months
ended June 30, ended June 30,
-------------------- ------------------
2002 2001 2002 2001
------- ------- ------- --------
(Dollars in Thousands)
Earnings per share:
- ------------------
Basic:
Income from continuing operations before cumulative effect of change
in accounting principle................................................... $ 0.91 $ 0.51 $ 1.88 $ 0.90
Cumulative effect of change in accounting principle, net of tax ............ - 0.08 - -
------ ------ ------ ------
Income from continuing operations........................................... 0.91 0.51 $ 1.96 0.90
Loss on businesses held-for-sale............................................ (0.04) (0.03) (0.06) (0.05)
------ ------ ------ ------
Net income ................................................................. $ 0.87 $ 0.48 $ 1.90 $ 0.85
====== ====== ====== ======
Diluted:
Income from continuing operations before cumulative effect of change
in accounting principle................................................... $ 0.88 $ 0.50 $ 1.82 $ 0.89
Cumulative effect of change in accounting principle, net of tax ............ - - 0.08 -
------ ------ ------ ------
Income from continuing operations........................................... 0.88 0.50 1.90 0.89
Loss on businesses held-for-sale............................................ (0.04) (0.02) (0.05) (0.05)
------ ------ ------ ------
Net income ................................................................. $ 0.84 $ 0.48 $ 1.85 $ 0.84
====== ====== ====== ======
Outstanding common stock equivalents having no dilutive effect.............. - 464 - 526
3. Discontinued Operations of a Business Segment
The operations of WSFS Credit Corporation (WCC) were discontinued in
December 2000. Accordingly, the results of WCC's operations are treated as
Discontinued Operations of a Business Segment, and shown separately from the
results of continuing operations of the Corporation. WCC, which had 3,414 lease
contracts and 1,406 loan contracts at June 30, 2002, no longer accepts new
applications but continues to service existing loans and leases until their
maturity. Management estimates that substantially all loan and lease contracts
will mature by the end of December 2004.
In December 2000, the Corporation established a $6.2 million pretax reserve
to absorb expected future net losses of WCC. As used vehicle values continued to
deteriorate in 2001, $3.1 million was added to this reserve in December of 2001
for the expected losses in the business during its wind-down period. Actual
residual losses for the first six months of 2002 have been reasonably consistent
with the Company's expectations at December 31, 2001.
Due to the uncertainty of a number of factors, including residual values,
interest rates, credit quality and operating costs, this reserve is reevaluated
quarterly with adjustments, if necessary, recorded as income/losses on wind-down
of discontinued operations. At June 30, 2002, there were approximately $63
million of contract residuals outstanding for which management has estimated
approximately $9.6 million in future losses. Management has inherently provided
for these losses through a combination of expected positive operating results of
WCC (excluding residual losses), reserves for residual losses and reserves for
discontinued operations.
The following chart presents the operating leases, loans and other assets
of discontinued operations at June 30, 2002 and December 31, 2001:
At June 30, At December 31,
2002 2001
------------ ------------
(In Thousands)
Vehicles under operating leases, net of reserves ..... $ 71,020 $102,288
Loans ................................................ 11,253 16,131
Other noncash assets ................................. 2,180 3,241
Less:
Reserve for losses of discontinued operations(1).... 5,745 6,365
-------- --------
Loans, operating leases and other assets of
discontinued operations ............................ $ 78,708 $115,295
======== ========
(1) Reduction is due to a $600,000 transfer to the lease residual loss reserve
to cover current residual losses experienced.
9
The following table presents the net income from discontinued operations
for the three and six months ended June 30, 2002 and 2001:
For the three months For the six months
ended June 30, ended June 30,
-------------------------- ----------------------
2002 2001 2002 2001
--------- ---------- -------- --------
(In Thousands)
Interest income........................ $ 267 $ 490 $ 569 $ 1,049
Allocated interest expense (1)......... 647 2,606 1,402 5,598
------ ------- ------- -------
Net interest expense................... (380) (2,116) (833) (4,549)
Loan and lease servicing fee income ... 88 57 220 206
Rental income on operating leases, net. 615 2,308 1,225 4,986
Other income........................... 2 6 6 10
------ ------- ------- -------
Net revenues 325 255 618 653
Other operating expenses............. 304 438 638 964
------ ------- ------- -------
Income (loss) before taxes............. 21 (183) (20) (311)
(Credit) charge to reserve for losses
on discontinued operations .......... (21) 273 20 401
Income tax provision .................. - 90 - 90
------ ------- ------ -------
Income from discontinued operations.... $ - $ - $ - $ -
====== ======= ====== =======
(1) Allocated interest expense for the three and six months ended June 30, 2001
was based on the Company's annual average wholesale borrowings rate of
5.96% and 6.19%, respectively, which approximated a marginal funding cost
of this business. Beginning in December 2001, the allocated interest
expense is based on a direct matched-maturity funding of the net non-cash
assets of discontinued operations. The average borrowing rate for the three
and six months ended June 30, 2002 was 2.79% and 2.78%, respectively.
4. INVESTMENTS IN NON-WHOLLY-OWNED SUBSIDIARIES
The Corporation consolidates two non-wholly-owned subsidiaries, CustomerOne
Financial Network, Inc. (C1FN) and Wilmington Finance, Inc. (WF).
C1FN provides direct-to-customer marketing, servicing and Internet
development and technology management for branchless financial services. Since
the fourth quarter of 1999, WSFS and C1FN have been engaged in a joint effort
through a division of WSFS, Everbank, to provide branchless financial services
on a national level. Consistent with the manner in which the segment is managed
and operated, information in this report labelled "C1FN" generally represent the
profoma combined results of C1FN and WSFS' Everbank Division (the
C1FN/Everbank.segment) WSFS originally invested $5.5 million, which through
cumulative operating losses, has diminished to a book value of $1.8 million at
June 30, 2002 including approximately $1 million in goodwill. Currently, WSFS
has a 21% ownership interest in C1FN, and warrants to acquire additional
ownership under certain circumstances, but exercises majority control through a
voting trust. Therefore, the results of C1FN are consolidated into WSFS. C1FN
was charged a service fee by WSFS of $940,000 and $1.1 million for the three
months and six months ended June 30, 2002, respectively, compared to $120,000
and $240,000 for the comparable periods in 2001. This service fee is partially
eliminated in consolidation. Under an agreement with C1FN, $500,000 of these
fees as of June 30, 2002 are deferred pending certain events. As a result, WSFS
has fully reserved for this amount pending further clarity that these amounts
will be received.
In June 2002, WSFS entered into an agreement with a privately held holding
company of a federally chartered savings bank for the sale of C1FN and related
interests in WSFS' Everbank Division. See Note 9 to the financial statements for
further discussion.
WF is a 51% owned subsidiary and began operations in December 1999. WSFS
holds warrants to purchase an additional 14% ownership interest for
approximately $850,000. WF is a mortgage banker generally dealing in
higher-grade subprime loans. WF solicits and originates its loans primarily as a
result of referrals through independent mortgage brokers, although
direct-to-consumer originations accounted for 4.9% and 5.3% of total
originations for the three and six months ended June 30, 2002, respectively,
compared to 8.1% and 10.3% for the respective periods in 2001. WF originates all
loans and sells its originations to investors, typically well known regional
banks or national finance companies, on a whole loan,
10
for cash premiums only (no securitizations). Mortgage loans are sold with very
limited recourse beyond the standard market representations and warranties.
WF has a centralized secondary market function which analyzes the product
needs of the various end investors, consolidates the investors' underwriting
guidelines into the product parameters that WF offers to its brokers and
ultimately sells WF's originations to the end investors. Between the time loans
are originated and sold, they are warehoused on WF's balance sheet. WSFS
provides temporary financing for the loans through a warehouse line of credit
with an adjustable rate generally based on the one-month FHLB Advance rate plus
90 basis points. This line is limited to $135 million but can increase to $150
million on a temporary basis. At June 30, 2002, $80.3 million was outstanding on
this line. The average age of unsold loans at June 30, 2002 was 9 days compared
to 8 days at June 30, 2001. The percentage of loans in the warehouse that were
45 days old or greater were 2.33% at June 30, 2002 and 0.74% at June 30, 2001.
WF's total assets at June 30, 2002 and 2001 were $95.9 million and $35.4
million, respectively. For the three and six months ended June 30, 2002, WF
added $2.2 million and $3.9 million, respectively, to the net income of the
Corporation, compared to $814,000 and $1.0 million for the respective periods in
2001. At June 30, 2002, WSFS also held $3.0 million in preferred stock of WF.
WSFS purchased $1.4 million of WF loans during the six months ended June 30,
2002, as compared to $17.9 million for the same period in 2001.
The following table provides certain additional WF production and sales
statistics for the periods indicated:
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------- --------------------------
2002 2001 2002 2001
----------- ------------ ----------- ----------
(Dollars in Thousands)
Origination Dollars $ 363,206 $ 136,767 $ 639,996 $ 219,332
Origination Units 3,026 1,093 5,256 1,859
Average mortgage balance $ 120,257 $ 125,132 $ 121,885 $ 117,783
Weighted average note rate 8.50% 8.44% 8.50% 8.77%
Weighted average CLTV 1 83% 79% 82% 80%
Weighted average credit score 630 655 636 648
Percentage of second liens 9% 7% 8% 8%
Sales $338,444 $ 129,098 $ 629,189 $ 205,442
Sales margin 4.03% 3.79% 4.02% 3.82%
Average days of loan in warehouse 24 27 25 29
1 Combined Loan-To-Value represents the mortgage amount plus any senior liens
(or junior liens if also originated by WF) divided by the appraised value of
the property.
5. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
The Corporation has an interest-rate cap with a notional amount of $50
million, which limits 3-month LIBOR to 6% for the ten years ending December 1,
2008. The cap is being used to hedge the cash flows on $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, has 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, is 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 a standard option
model, affirmed by quoted prices for similar instruments.
11
Everbank enters into short-term forward exchange contracts to provide
an effective fair value hedge on the foreign currency denominated deposits from
fluctuations that may occur in world currency markets. At June 30, 2002 and
2001, Everbank had entered into such contracts with a notional amount of $91.5
million and $53.1 million, respectively. During the six months ended June 30,
2002 and 2001, the expense associated with these hedging contracts was almost
entirely offset by changes in the fair value of the world currency denominated
deposits. There was no material impact on other income.
The following depicts the change in fair market value of the Company's
derivatives:
2002 2001
------------------------------ -------------------------------------
At At At At
January 1, Change June 30, January 1, Change June 30,
---------- -------- -------- ---------- ---------- ----------
(In Thousands)
Interest Rate Cap:
-----------------
Intrinsic value (1)......... $ 589 $ (544) $ 45(1) $ 193 $ 632 $ 825(1)
Time value (2).............. 1,945 (340)(2) 1,605 1,804 200(2) 2,004
-------- ------ ------- ------- ------- -------
Total....................... $ 2,534 $ (884) $ 1,650 $ 1,997 $ 832 $ 2,829
======= ====== ======= ======= ======= =======
Foreign Exchange Contracts
--------------------------
Time Value.................. $ (395) $4,833 $ 4,438 $ 1,385 $ (2,499) $(1,114)
======= ====== ======= ======= ======== =======
(1) Included in other comprehensive income, net of taxes.
(2) Included in interest expense on the hedged item (trust preferred
borrowings).
On July 1, 2002, the Corporation redesignated the interest rate cap. As a
result, beginning July 1, 2002, the entire change in market value of the cap is
expected to be recognized in other comprehensive income with a portion
reclassified into earnings according to the value of the instrument's individual
quarterly caplets. Caplets are defined as the series of caps that limit the
interest rate of particular periods. This redesignation provides a more
systematic method for amortizing the cost of the cap against earnings.
6. COMPREHENSIVE INCOME
The following schedule reconciles net income to total comprehensive income
as required by SFAS No. 130:
For the three months For the six months
ended June 30, ended June 30,
-------------------- -------------------
2002 2001 2002 2001
-------- --------- -------- --------
Net income .......................................... $ 7,921 $ 4,706 $ 17,347 $ 8,426
Other Comprehensive Income:
Net unrealized holding gains on securities
available-for-sale arising during the period,
net of taxes..................................... 600 170 173 1,874
Net unrealized holding (losses) gains arising
during the period on derivatives used for
cash flow hedge, net of taxes..................... (529) 455 (354) 411
Reclassification adjustment for gains included in net
income, net of taxes.............................. (13) - (14) -
------- ------- -------- --------
Total comprehensive income........................... $ 7,979 $ 5,331 $ 17,152 $ 10,711
======= ======= ======== ========
12
7. TAXES ON INCOME
The Corporation accounts for income taxes in accordance with SFAS No. 109,
which requires the recording of deferred income taxes that reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes.
Management has assessed substantial valuation allowances on the deferred
income taxes due to, among other things, limitations imposed by Internal Revenue
Code and uncertainties, including the timing of settlement and realization of
these differences. The IRS is in the process of finalizing examinations of the
Corporation's federal tax returns for the years through December 31, 2000.
Valuation allowances are evaluated periodically based on, among other things,
the occurrence or non-occurence of events, including results from tax authority
examinations and economic activities, which impact the likelihood that the
deferred tax benefits will be realized.
13
8. SEGMENT INFORMATION
Under the definition of SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, the Corporation had two operating segments
during the three and six months ended June 30, 2002 and 2001: WSFS and WF. WF is
not wholly-owned, but is a majority controlled subsidiary. As a majority
controlled subsidiary, it is included in consolidated financial statements,
including segment reporting. Generally, reportable segments are business units
that are managed separately, operate under different regulations and offer
different services to distinct customer bases. The Corporation evaluates
performance based on pretax ordinary income and allocates resources based on
these results.
The WSFS segment provides financial products to consumer and commercial
customers within its geographical footprint through its branch network. WF, a
51% owned subsidiary, is engaged in sub-prime home equity mortgage banking. WF
conducts activity on a national level and aggregates loans primarily through
brokers and sells them to investors. Because C1FN is classified as a business
held-for-sale, it is no longer considered a segment. For a further discussion of
C1FN, see Note 9 of the financial statements.
Segment information for the three and six months ended June 30, 2002
follow:
For the three months ended June 30,
-----------------------------------------------------------------------
2002 2001
------------------------------------ ---------------------------------
(In Thousands)
WSFS WF Total WSFS WF Total
---- -- ----- ---- -- -----
External customer revenues:
Interest income $ 24,905 $ 1,976 $ 26,881 $ 26,182 $ 814 $ 26,996
Other income 5,735 13,671 19,406 4,815 4,558 9,373
---------- --------- ---------- ---------- --------- ---------
Total external customer revenues 30,640 15,647 46,287 30,997 5,372 36,369
---------- --------- ---------- ---------- --------- ---------
Intersegment revenues:
Interest income 605 5 610 532 22 554
Other income - 24 24 - 320 320
---------- -------- ---------- --------- -------- --------
Total Intersegment revenues 605 29 634 532 342 874
---------- --------- ---------- ---------- --------- ---------
Total revenue 31,245 15,676 46,921 31,529 5,714 37,243
External customer expenses:
Interest expense 9,164 - 9,164 12,057 - 12,057
Other expenses 11,467 8,057 19,524 12,436 3,749 16,185
Other depreciation and amortization 910 154 1,064 773 76 849
---------- --------- ---------- ---------- --------- ---------
Total external customer expenses 21,541 8,211 29,752 25,266 3,825 29,091
---------- --------- ---------- ---------- --------- ---------
Intersegment expenses:
Interest expense 5 605 610 22 532 554
Other expenses 24 - 24 320 - 320
---------- --------- ---------- ---------- --------- ---------
Total Intersegment expenses 29 605 634 342 532 874
Total expenses 21,570 8,816 30,386 25,608 4,357 29,965
---------- --------- ---------- ---------- --------- ---------
Income before minority interest and taxes $ 9,675 $ 6,860 $ 16,535 $ 5,921 $ 1,357 $ 7,278
---------- --------- ---------- ---------- --------- ---------
Less minority interest 3,362 -
Provision for income taxes 4,901
2,327
(Loss) from businesses held-for-sale (351) (245)
---------- ---------
Consolidated net income $ 7,921 $ 4,706
---------- ---------
14
For six months ended June 30,
----------------------------------------------------------------------
2002 2001
----------------------------------- ----------------------------------
(In Thousands)
WSFS WF Total WSFS WF Total
---- -- ----- ---- -- -----
External customer revenues:
Interest income $ 52,348 $ 3,727 $ 56,075 $ 51,527 $ 1,401 $ 52,928
Other income 10,764 25,315 36,079 9,419 7,349 16,768
--------- -------- --------- -------- -------- --------
Total external customer revenues 63,112 29,042 92,154 60,946 8,750 69,696
--------- -------- --------- -------- -------- --------
Intersegment revenues:
Interest income 1,207 11 1,218 951 36 987
Other income - 78 78 - 320 320
--------- -------- --------- -------- -------- --------
Total intersegment revenues 1,207 89 1,296 951 356 1,307
--------- -------- --------- -------- -------- --------
Total revenue 64,319 29,131 93,450 61,897 9,106 71,003
External customer expenses:
Interest expense 18,210 - 18,210 25,217 - 25,217
Other expenses 23,228 15,294 38,522 23,298 6,337 29,635
Other depreciation and
amortization 1,761 288 2,049 1,543 144 1,687
--------- -------- --------- -------- -------- --------
Total external customer expenses 43,199 15,582 58,781 50,058 6,481 56,539
--------- -------- --------- -------- -------- --------
Intersegment expenses:
Interest expense 11 1,207 1,218 36 951 987
Other expenses 78 - 78 320 - 320
--------- -------- --------- -------- -------- --------
Total intersegment expenses 89 1,207 1,296 356 951 1,307
--------- -------- --------- -------- -------- --------
Total expenses 43,288 16,789 60,077 50,414 7,432 57,846
Income (loss) before minority
interest, taxes and cumulative
effect of change in accounting
principle $ 21,031 $ 12,342 $ 33,373 $ 11,483 $ 1,674 $13,157
--------- -------- --------- -------- -------- --------
Less minority interest 6,048 -
Provision for income taxes 10,178 4,211
Cumulative effect of change in accounting
principle 703 -
(Loss) on businesses held for sale (503) (520)
--------- --------
Consolidated net income $ 17,347 $ 8,426
========= ========
- --------------------------------------------------------------------------------
At June 30, 2002 At June 30, 2001
--------------------------------- ---------------------------------
(In Thousands)
WSFS WF Total WSFS(1) WF Total
---- -- ----- ------- -- -----
Mortgage backed securities $ 142,873 $ - $ 142,873 $ 159,640 $ - $ 159,640
Investments of businesses held for
sale $ 288,333 $ - 288,333 $ 245,054 $ - $ 245,054
Segment Assets $1,937,950 $ 95,908 $2,033,858 $1,833,147 $35,384 $1,868,531
Elimination intersegment receivables (90,081) (35,159)
---------- ----------
Consolidated assets $1,943,777 $1,833,372
========== ==========
---------- ----------
Total deposits $1,163,990 $ - $1,163,990 $1,167,310 $ - $1,167,310
========== ==========
Segment liabilities $1,820,791 $ 84,978 $1,905,769 $1,733,393 $33,447 $1,766,840
Elimination intersegment liabilities (83,616) (31,963)
---------- ----------
Consolidated liabilities $1,822,153 $1,734,877
========== ==========
Capital expenditures $ 242 $ 843 $ 1,085 $ 1,237 $ 221 $ 1,458
(1). For comparative purposes, the 2001 balances for C1FN have been included in
WSFS
15
9. BUSINESSES HELD FOR SALE
In June 2002, agreements were signed with a privately-held holding company
of a federally chartered savings bank for the sale of CustomerOne Financial
Network, Inc. (C1FN) and related interests in WSFS' Everbank Division (the
C1FN/Everbank segment). As contemplated, the transaction would realize a modest
dollar premium to WSFS' current net investment in the C1FN/Everbank segment,
which was $1.8 million at June 30, 2002. The transaction is subject to
regulatory and other approvals as well as closing conditions. The transaction is
expected to close in the fourth quarter of 2002, however, no assurance can be
provided that all conditions to closing will be satisfied. If a sale of C1FN is
not consummated in a timely manner, it is likely that impairment of this
investment and other liquidation costs will result. Consistent with the manner
in which the segment is managed and operated, information in this report
labelled "C1FN" generally represent the profoma combined results of C1FN and
WSFS' Everbank Division (the C1FN/Everbank segment).
Everbank was started with C1FN in the fourth quarter of 1999 as a joint
initiative in internet and branchless banking. Under the terms of its management
agreement with WSFS, C1FN had the right to acquire the deposits and business of
Everbank if C1FN obtained its own depository institution charter. In April 2002,
C1FN concluded that it was likely that sufficient capital could not be raised on
a timely basis and withdrew its application to the Office of Thrift Supervision
(OTS) for a separate thrift charter. In June 2002, the above agreements of sale
were signed.
C1FN/Everbank is currently a relatively low margin business for WSFS. If
sold, WSFS would likely experience an improvement in performance ratios such as
efficiency ratio, net interest margin and return on average assets, as well as
capital ratios, but a modest deterioration in nonperforming assets ratios as a
result of a low level of loans to assets at C1FN/ Everbank.
In addition, in June 2002 WSFS signed an agreement for the sale of its
United Asian Bank Division (UAB). UAB was started in April 2000 as a single
branch to serve the Korean and Asian communities of Elkins Park, Pennsylvania
and the surrounding area. Approximately $10 million in deposits and $15 million
in loans will be included in the transaction, in addition to branch fixed assets
and the lease obligations. The sale, which includes an undisclosed deposit
premium, is expected to close late in the third quarter of 2002. The transaction
is subject to regulatory approvals and other customary closing conditions.
These planned sales are consistent with recent strategic actions of WSFS to
simplify its operations and better focus resources and capital on WSFS' core
bank.
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, the major classes of assets and liabilities of
C1FN/Everbank and UAB are presented separately on the statement of condition,
and the average balance sheet as held-for-sale. losses from C1FN/Everbank and
UAB have been classified in a single line item, Loss of businesses held for
sale, and presented separately on the statement of operations for all periods
16
The following presents the balance sheet items for businesses held for
sale. December 2001 information has been included for comparative purposes
only:
At June 30, 2002 At December 31, 2001
-------------------------------- ---------------------------------
C1FN UAB Consolidated C1FN UAB Consolidated
-------- -------- ------------- -------- -------- ------------
(In Thousands)
Investments of businesses held-for-sale ......... $288,333 $ - $288,333 $260,160 $ - $ 260,160
Loans, net of business held-for-sale ............ 18,413 17,917 36,330 23,011 13,124 36,135
Other assets of businesses held-for-sale ........ 7,143 271 7,414 5,484 296 5,780
-------- -------- -------- -------- -------- --------
Total assets of businesses held-for-sale ...... $313,889 $ 18,188 $332,077 $288,655 13,420 $302,075
======== ======== ======== ======== ======== ========
Deposits of businesses held-for-sale ............ $311,448 $ 9,908 $321,356 $287,450 $ 10,720 $298,170
Other liabilities of businesses held-for sale ... 1,390 - 1,390 1,193 - 1,193
-------- -------- -------- -------- -------- --------
Total liabilities of businesses held for sale . $312,838 $ 9,908 $322,746 $288,643 $ 10,720 $299,363
======== ======== ======== ======== ======== ========
The following table presents the net income from businesses held-for-sale
for the three and six months ended June 30, 2002 and 2001:
For the Three Months For the Three Mnths
Ended June 30, 2002 Ended June 30, 2001
-------------------------------- ---------------------------------
C1FN UAB Consolidated C1FN UAB Consolidated
-------- -------- ------------- -------- -------- ------------
(In Thousands)
Interest income............................. $ 2,904 $ 329 $ 3,233 $ 3,783 $ 237 $ 4,020
Interest expense ........................... 1,421 30 1,451 2,679 58 2,737
--------- --------- --------- --------- -------- ---------
Net interest income....................... 1,483 299 1,782 1,104 179 1,283
Provision for loan losses.................. 77 21 98 52 - 52
--------- -------- --------- --------- -------- ---------
Net interest income after provision for
loan losses............................. 1,406 278 1,684 1,052 179 1,231
Other income................................ 1,245 19 1,264 655 22 677
Other expenses ............................. 4,610 321 4,931 2,767 301 3,068
--------- ------- --------- --------- -------- ---------
Income before minority interest and taxes... (1,959) (24) (1,983) (1,060) (100) (1,160)
Minority interest ........................... (1,411) - (1,411) (753) - (753)
--------- ------- --------- --------- -------- ---------
Income before taxes.......................... (548) (24) (572) (307) (100) (407)
Taxes........................................ (211) (10) (221) (122) (40) (162)
--------- ------- --------- --------- -------- ---------
Net income................................... $ (337) $ (14) $ (351) $ (185) $ (60) $ (245)
========= ======= ========= ========= ======== =========
For the Six Months For the Six Mnths
Ended June 30, 2002 Ended June 30, 2001
-------------------------------- ---------------------------------
C1FN UAB Consolidated C1FN UAB Consolidated
-------- -------- ------------- -------- -------- ------------
(In Thousands)
Interest income....................... $ 5,797 $ 619 $ 6,416 $ 7,298 $ 408 $ 7,706
Interest expense ..................... 2,766 64 2,830 5,270 101 5,371
--------- ------- --------- --------- -------- ---------
Net interest income................. 3,031 555 3,586 2,028 307 2,335
Provision for loan losses............ 107 39 146 95 58 153
--------- ------- --------- --------- -------- ---------
Net interest income after provision for
loan losses....................... 2,924 516 3,440 1,933 249 2,182
Other income.......................... 2,256 43 2,299 1,288 44 1,332
Other expenses ....................... 7,529 725 8,254 5,333 546 5,879
--------- ------- --------- --------- -------- ---------
Income before minority interest and taxes (2,349) (166) (2,515) (2,112) (253) (2,365)
Minority interest ..................... (1,692) - (1,692) (1,500) - (1,500)
--------- -------- --------- --------- -------- ---------
Income before taxes.................... (657) (166) (823) (612) (253) (865)
Taxes.................................. (254) (66) (320) (244) (101) (345)
--------- -------- --------- --------- -------- ---------
Net income $ (403) $ (100) $ (503) $ (368) $ (152) $ (520)
========= ======== ========== ========= ======== =========
17
ITEM 2. WSFS FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- -------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
WSFS Financial Corporation (Company or Corporation) is a thrift holding
company headquartered in Wilmington, Delaware. Substantially all of the
Corporation's assets are held by its subsidiary, Wilmington Savings Fund
Society, FSB (WSFS). Founded in 1832, WSFS is one of the oldest financial
institutions in the country. As a federal savings bank which was formerly
chartered as a state mutual savings bank, WSFS enjoys broader revenue powers
than most savings banks. WSFS has served the residents of the Delaware Valley
for 170 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 long-term
goal of the Corporation is to maintain its high-performing financial services
company status by focusing on its core banking business while occasionally
developing profitable niches in highly-synergistic businesses that have a
strategic fit.
WSFS provides residential and commercial real estate, commercial and
consumer lending services, as well as cash management services. Lending
activities are funded primarily with retail deposit services and borrowings. At
June 30, 2002 there were 22 retail banking offices located in northern Delaware
and southeastern Pennsylvania through which WSFS conducted banking operations.
In January 2002, for strategic reasons, WSFS had transferred five in-store
branch offices that were outside of its core footprint to another financial
institution. Deposits are insured to their legal maximum by the Federal Deposit
Insurance Corporation (FDIC).
The Corporation has two consolidated subsidiaries, WSFS and WSFS Capital
Trust I, and no unconsolidated subsidiaries or off-balance sheet entities.
Fully-owned subsidiaries of WSFS include WSFS Credit Corporation (WCC), which is
engaged primarily in indirect motor vehicle leasing; and WSFS Investment Group,
Inc. (formerly 838 Investment Group), which markets various third party
insurance products and securities through the WSFS' branch system. An additional
subsidiary, Star States Development Company (SSDC), is currently inactive. In
addition to the wholly-owned subsidiaries, the Corporation consolidates two
non-wholly-owned subsidiaries, CustomerOne Financial Network, Inc. (C1FN) and
Wilmington Finance, Inc. (WF), formerly Wilmington National Finance Inc. See
footnote 4 of the financial statements for a further discussion.
As we have reported previously, WSFS continues its strategy to refocus its
capital and resources on its core community banking operation, primarily in the
Delaware market. As a result, we have regularly reviewed our business
investments and asset portfolios to determine whether continued investment in
those lines of business or assets are in the best interest of WSFS and its
stockholders. As a result of such reviews in the recent past, we have
discontinued the operations of our indirect automobile finance business (WSFS
Credit Corporation), exited non-core branches in Pennsylvania and entered into
agreements to sell our United Asian bank Division and the C1FN/Everbank national
branchless banking segment. As part of this strategic focus, we will continue to
review our investments in various businesses, operating lines, and assets, and
may determine to exit or sell our interest in such businesses, operating lines
and assets. Such sales, if they were to occur, may result in WSFS incurring
losses or gains, which may be material in amount.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Financial Condition
Total assets increased $29.9 million during the first six months of 2002 to
$1.9 billion at June 30, 2002. Asset growth included $288.3 million in
investments of businesses held-for sale. This category is comprised of the
investments of C1FN Everbank and the United Asian Bank Division. In June 2002
agreements were signed to sell these businesses. In accordance with SFAS No.
144, the major classes of assets and liabilities from these businesses are
presented separately at June 30, 2002, while at December 31, 2001 the assets and
liabilities were displayed in their respective lines. The majority of this
increase came from reclassing mortgage-backed securities to investments of
businesses held-for-sale. As a result mortgage-backed securities decreased
$218.9 million. In addition, loans (including loans of businesses held-for-
18
sale) increased $22.3 million. These increases were partially offset by
decreases of $36.6 million in operating leases, loans and other assets of
discontinued operations, due to run-off in the WCC loan and lease portfolios.
Also, cash and liquid investments decreased by $18.9 million.
Total liabilities increased $14.0 million between December 31, 2001 and
June 30, 2002, to $1.8 billion. Deposits (including deposits of businesses
held-for-sale) increased $17.9 million during the first six months of 2002.
Partially offsetting this increase was the maturity of $8.3 million in brokered
deposits.
Capital Resources
Stockholders' equity increased $15.1 million between December 31, 2001 and
June 30, 2002. This increase reflects net income of $17.3 million for the first
six months of 2002, partially offset by the purchase of 73,100 shares of
treasury stock for $1.4 million ($19.38 per share average). At June 30, 2002,
the Corporation held 5,745,269 shares of its common stock in its treasury at a
cost of $71.7 million. In addition, the Corporation declared cash dividends
totaling $820,000 during the six months ended June 30, 2002.
Below is a table presenting the Bank's consolidated capital position
relative to the minimum regulatory requirements as of June 30, 2002 (dollars in
thousands):
To be Well-Capitalized
Consolidated For Capital Under Prompt Corrective
Bank Capital Adequacy Purposes Action Provisions
---------------------- ---------------------- -----------------------
% of % of % of
Amount Assets Amount Assets Amount Assets
------ ------ ------ ------ ------ ------
Total Capital
(to Risk-Weighted Assets) ........ $170,264 13.55% $100,526 8.00% $125,657 10.00%
Core Capital (to Adjusted
Tangible Assets).................. 160,211 8.23 77,900 4.00 97,375 5.00
Tangible Capital (to Tangible
Assets) .......................... 160,211 8.23 29,212 1.50 N/A N/A
Tier 1 Capital (to Risk-Weighted
Assets)........................... 160,211 12.75 N/A N/A 75,394 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,
"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 actions and possibly additional discretionary
actions by regulators that, if undertaken, could have a direct material effect
on the Bank's financial statements. At June 30, 2002 the Bank was in compliance
with regulatory capital requirements and was deemed a "well-capitalized"
institution.
Liquidity
In accordance with Thrift Bulletin 77, the OTS requires institutions such
as WSFS to maintain adequate liquidity to assure safe and sound operation. At
June 30, 2002, WSFS' liquidity ratio of cash and qualified assets to net
withdrawable deposits and borrowings due within one year was 4.5% compared to
10.8% at December 31, 2001. Liquidity was higher than usual at December 31, 2001
as a result of prefunding certain borrowings for January 2002. Management
monitors liquidity daily and maintains funding sources to meet unforeseen
changes in cash requirements. The Corporation's primary financing sources are
deposits, repayments of loans and investment securities, sales of loans,
borrowings and net earnings. In addition, the Corporation's liquidity needs can
be met 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 all these sources are sufficient to maintain the
required and prudent levels of liquidity.
19
INVESTMENT IN REVERSE MORTGAGES
Reverse mortgage loans are contracts that require the lender to make
monthly advances throughout the borrower's life or until the borrower relocates,
prepays or the home is sold, at which time the loan becomes due and payable.
Since reverse mortgages are nonrecourse obligations, the loan repayments are
generally limited to the sale proceeds of the borrower's residence, and the
mortgage balance consists of cash advanced, interest compounded over the life of
the loan and a premium which represents a portion of the shared appreciation in
the home's value, if any, or a percentage of the value of the residence.
The Corporation had a net investment in reverse mortgages of $36.0 million
at June 30, 2002. The Corporation accounts for its investment in reverse
mortgages in accordance with the October 1, 1992 Securities and Exchange
Commission staff memorandum entitled "Accounting for Pools of Uninsured
Residential Real Estate Contracts." The memorandum requires grouping individual
reverse mortgages into "pools" and recognizing income based on the estimated
effective yield of the pool. The Corporation's investment in reverse mortgages
is grouped into two pools based on geography and origination date (the "1993
Pool" and the "1994 Pool"). In computing the effective yield of each, the
Corporation must project cash flows of the pool using actuarial projections of
the life expectancy of the individual contract holders, other estimates of
timing of cash flows and changes in the collateral value of the residence. At
each reporting date, a new economic forecast is made of the cash flows of each
pool of reverse mortgages. The effective yield of each pool is recomputed, and
income is adjusted retroactively and prospectively to reflect the revised rate
of return. Because of this quasi-market-value-based accounting, the recorded
value of reverse mortgage assets include significant risk associated with both
estimations and real estate market conditions, and therefore income can vary
significantly from reporting period to reporting period.
As indicated, a projection of future net cash flows requires making
assumptions and estimates about current values and future appreciation of house
values, mortality rates and mobility rates. Assumptions are also made to factor
the time it takes to liquidate the receivable after a maturity event has
occurred. These assumptions are made at a point in time and are based on
historical experiences and expected economic conditions. It should be noted that
reverse mortgages are a relatively new product and therefore only a limited
amount of historical data exists on which to base future expectations. As with
any estimates about the future, these assumptions are subjective, and will
change as market conditions or the portfolio experience dictates. Accordingly,
actual results may differ materially from the assumptions used in the model.
Based on the estimate of the future net cash flows as of the second
quarter, an additional $1.9 million of interest income was recognized
(cumulative "catch up" adjustment.) This was due to the actual experience and
the continued strong performance of the underlying collateral values as well as
faster repayment rates (death and moveout) than previously predicted by the
Corporation's cash flow model. In the second quarter the Corporation also made
changes to certain assumptions regarding future repayment rates and home
appreciation rates. These changes were based on an analysis of WSFS' historical
experience and third party forecasted data. Had these changes not been made,
$3.2 million of additional interest income for the quarter would have been
recognized instead of the $1.9 million.
As discussed, the book value of reverse mortgages is sensitive to a number
of factors including the Corporation's estimate of the following key variables:
o Current Collateral Value
o Future Collateral Appreciation Rate
o Repayment Rate
o Collection Time
Listed below is a discussion of each factor impacting future cash flow
estimates, noting current assumptions, historical experience and management's
best estimate of the sensitivity of the value to a change in the assumption,
presented in tabular form. The market value sensitivities to combined changes in
the assumptions listed below may not necessarily be additive due to the
interdependency of the variables. Also, these sensitivities may not have a
linear extrapolation beyond the sensitivities provided. Finally, sensitivity
tables provided herein, are based on the Corporation's internal models and, as
such, are subject to risks associated with internally generated models.
20
Current Collateral Value Estimates
To assess the current market value of the collateral as of the reporting
date, the Corporation utilizes an "18-month look-back" approach, which
calculates the compounded annualized appreciation rates since origination on the
homes that were actually sold and collected during the previous 18-month period.
This rate is used as a proxy for, and is applied to the remaining houses in the
Pool. The most recent 18-month look-back calculated a 3.13% compounded annual
growth rate of appreciation for the 1994 Pool and a 1.39% compounded annual
growth rate of appreciation for 1993 Pool. The Corporation has experienced a
substantial improvement over the last few quarters in the estimate of current
collateral values from the 18-month look-back approach as a result of the recent
strong residential housing market. The following table illustrates the proforma
pre-tax change to the carrying value of the reverse mortgages when the estimate
of collateral values at June 30, 2002 is adjusted by the noted percentages.
Proforma Adjustment to
Reverse Mortgage Carrying Value
-----------------------------------------------
Change in Current
Collateral Values 1993 Pool 1994 Pool Total
- --------------------------------------------------------------------------------
(Dollars in Millions)
-3% $(.5) $(.6) $(1.1)
-2% (.3) (.4) (.7)
-1% (.2) (.2) (.4)
+1% .2 .2 .4
+2% .3 .4 .7
+3% .5 .6 1.1
Future Collateral Appreciation Rate Estimates
To estimate future home appreciation rates, third party macroeconomic
forecasting firms are utilized in addition to the Corporation's own historical
experience relative to the overall market. Over the long term, the Corporation's
estimates that the 1994 Pool will appreciate at approximately 1% per year and
the 1993 Pool at 0% per year. In the short term, the Corporation uses
assessments of the economic factors that influence housing prices to determine
appreciation rates. Based on current economic factors and outside forecasting
sources, the Corporation is currently forecasting no (0%) appreciation in the
first year forward, a market value decline in year 2 of 5%, and a market value
decline in year 3 of 3% for both pools. The following table shows the proforma
adjustments to carrying value when applying a parallel shift to the current
appreciation rate estimates in all future years.
Proforma Adjustment to
Reverse Mortgage Carrying Value
---------------------------------------------
Change in Annual
Appreciation Rates 1993 Pool 1994 Pool Total
- --------------------------------------------------------------------------------
(Dollars in Millions)
-3% $ (2.0) $ (1.6) $ (3.6)
-2% (1.4) (1.1) (2.5)
-1% (.7) (.6) (1.3)
+1% .7 .6 1.3
+2% 1.5 1.2 2.7
+3% 2.3 1.7 4.0
21
Repayment Rate Estimates
Repayment rates are a combination of mortality rates and mobility (moveout)
rates and together constitute loan "maturity events." For mortality rates the
Corporation uses 85% of the 1980 U.S. Census Bureau mortality tables based on
the ages of homeowners in the portfolio. For the moveout rates, the Corporation
uses its historical experience. The Corporation's recent historical experience
(average of last 5 years' experience) indicates a 12.9% total annual repayment
rate for the 1993 pool and 11.8% total annual repayment rate for the 1994 pool.
Based on this experience the Corporation estimates future repayment rates of 13%
and 11.5%, respectively. A given change in the annual estimated repayment rate
would result in an adjustment to the carrying value as follows:
Proforma Adjustment to
Reverse Mortgage Carrying Value
---------------------------------------------
Change in Annual
Repayment Rate 1993 Pool 1994 Pool Total
- --------------------------------------------------------------------------------
(Dollars in Millions)
-3% $ (1.7) $ (4.5) $ (6.2)
-2% (1.1) (2.9) (4.0)
-1% (.6) (1.4) (2.0)
+1% .5 1.4 1.9
+2% 1.0 2.7 3.7
+3% 1.5 4.0 5.5
Collection Time Estimates
Collection time represents the time it takes to receive cash after a
maturity event. The Corporation's historical experience, measured monthly, has
predominantly varied between seven and thirteen months. Recent experience shows
a favorable trend as a result of the strong housing market. The Corporation's
current estimates are eight months for the 1994 Pool and ten months for 1993
Pool. A given change in the estimated collection time would result in an
adjustment to the carrying value as follows:
Proforma Adjustment to
Change in Reverse Mortgage Carrying Value
---------------------------------------------
Collection Time 1993 Pool 1994 Pool Total
- --------------------------------------------------------------------------------
(Dollars in Millions)
Unfavorable 3 Months $ (.3) $ (1.9) $ (2.2)
Unfavorable 2 Months (.2) (1.3) (1.5)
Unfavorable 1 Months (.1) (.7) (.8)
Favorable 1 Months .1 .7 .8
Favorable 2 Months .2 1.4 1.6
Favorable 3 Months .4 2.0 2.4
22
Portfolio Cash Flows and Carrying Value
In addition to the above Corporation estimated variables, the current book
value of reverse mortgages is sensitive to the assumed discount rate applied to
expected future cash flows estimated from the reverse mortgage portfolios. The
SEC prescribed accounting requires the book value of the portfolio to be
determined by discounting all future cash flow estimates by the internal rate of
return (or "Effective Yield") to be generated by the portfolio (and taking into
account both past actual and future estimated portfolio cash flows). The
annualized Effective Yield for the three months ended June 30, 2002 on the 1993
Pool is 8.14%, while the Effective Yield on the 1994 Pool is 39.45%. The
weighted average yield is approximately 26% and is, by definition, the expected
long-term yield on the portfolio.
Based on the Corporation's current estimates of Current Collateral Value,
Future Collateral Appreciation Rates, Repayment Rates and Collection Times, the
Corporation's cash flow model projects the following net cash flows to result
from its reverse mortgage portfolios in the periods identified.
Net Inflows
-----------------------------------------
1993 Pool 1994 Pool Total
--------- --------- -----
(Dollars in Millions)
Six months ending December 31, 2002 $ 2.6 $ 3.4 $ 6.0
2003......................... 3.0 8.0 11.0
2004......................... 2.1 7.1 9.2
2005......................... 1.9 6.4 8.3
2006......................... 1.8 6.1 7.9
2007-2011.................... 7.1 25.6 32.7
2012-2016.................... 4.0 16.7 20.7
2017-2021.................... 1.7 8.6 10.3
Thereafter................... .7 4.4 5.1
The following table depicts the addition to (reduction of) the $36 million
reverse mortgage carrying value that would result were the expected cash flows
estimated from the Corporation's reverse mortgage portfolios (above) discounted
to the present value at discount rates other than the SEC prescribed
methodology. Market indications of a discount rate on similar instruments
written more recently are estimated to be between 5% and 10%.
Proforma Adjustment to
Reverse Mortgage Carrying Value
----------------------------------------------
Assumed
Discount Rate 1993 Pool 1994 Pool Total
- --------------------------------------------------------------------------------
(Dollars in Millions)
25% $ (6.4) $8.3 $1.9
20% (5.2) 12.6 7.4
15% (3.5) 18.7 15.2
10% (1.1) 27.7 26.6
5% 2.6 42.1 44.7
Based on Company assumptions about funding costs, direct and indirect
operating costs and incremental taxes, reverse mortgages had an impact on the
Corporation of $0.21 per share in the second quarter of 2002 compared to $0.18
per share for the second quarter of 2001. For the six months ended June 30,
2002, reverse mortgages had an impact of $0.61 per share, compared to $0.25 per
share for the same period in 2001.
The Corporation is not originating new reverse mortgages. The average life
of the existing portfolio is estimated to be 7.6 years under current cash flow
assumptions.
23
NONPERFORMING ASSETS
The following table sets forth the Corporation's nonperforming assets and
past due loans at the dates indicated including businesses held-for-sale for
both periods presented. 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.
June 30, December 31,
2002 2001
-------- ------------
(Dollars in Thousands)
Nonaccruing loans:
Commercial ................................... $2,171 $1,330
Consumer ..................................... 294 306
Commercial mortgage .......................... 928 1,928
Residential mortgage ......................... 3,507 3,618
Construction ................................. 199 351
------ ------
Total nonaccruing loans ........................... 7,099 7,533
Assets acquired through foreclosure ............... 1,005 432
------ ------
Total nonperforming assets ........................ $8,104 $7,965
====== ======
Past due loans:
Residential mortgages ........................ $ 407 $ 88
Commercial and commercial mortgages .......... 473 767
Consumer ..................................... 252 244
------ ------
Total past due loans .............................. $1,132 $1,099
====== ======
Ratios:
Nonaccruing loans to total loans (1) ......... 0.66% 0.72%
Allowance for loan losses to gross loans (1).. 2.01% 2.05%
Nonperforming assets to total assets ......... 0.42% 0.42%
Loan loss allowance to nonaccruing loans (2).. 304.56% 277.77%
Loan and foreclosed asset allowance to total
nonperforming assets (2) ................... 269.51% 265.48%
(1) Total loans exclude loans held for sale.
(2) The applicable allowance represents general valuation allowances only.
Nonperforming assets increased a modest $139,000 during the six months
ended June 30, 2002. The largest increase occurred in nonaccruing commercial
loans which increased $842,000 during the six month period. This increase
reflects the reclassification of several small commercial loans to nonaccruing
status. This increase was partially offset by reductions in the all other
categories of nonaccruing loans. Also during the first half of 2002, an $800,000
nonperforming commercial mortgage was transferred to foreclosed assets.
Following is an analysis of the change in nonperforming assets:
For the Six
Months Ended For the Year Ended
June 30, 2002 December 31, 2001
---------------- ------------------
(In Thousands)
Beginning balance......................................... $ 7,965 $ 8,965
Additions ........................................... 4,628 7,386
Collections.......................................... (2,656) (5,596)
Transfers to accrual/restructured status............. (581) (1,542)
Charge-offs / write-downs............................ (1,252) (1,248)
---------- ---------
Ending balance............................................ $ 8,104 $ 7,965
========== =========
24
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 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 tool for
achieving its asset/liability management strategies. Management regularly
reviews the interest-rate sensitivity of the Corporation and adjusts the
sensitivity within acceptable tolerance ranges established by management. At
June 30, 2002, interest-earning assets exceeded interest-bearing liabilities
that mature within one year (interest-sensitive gap) by $80.4 million. The
Corporation's interest-sensitive assets as a percentage of interest-sensitive
liabilities within the one-year window decreased to 109% at June 30, 2002
compared to 114% at December 31, 2001. Likewise, the one-year interest-sensitive
gap as a percentage of total assets decreased to 4.13% at June 30, 2002 from
6.09% at December 31, 2001. The change is the result of the Corporation's
continuing effort to effectively manage interest rate risk. Interest
rate-sensitive assets of the Corporation excluded cash flows from discontinued
operations as well as the interest rate-sensitive funding for these assets of
approximately $100 million in FHLB Advances.
Market risk is the risk of loss from adverse changes in the 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 the estimated cash flows from assets and liabilities as a
percentage of net present value of cash flows from total assets (or the net
present value of equity). The table below is the estimated impact of immediate
changes in interest rates on the Company's net interest margin and net portfolio
value ratio at the specified levels at June 30, 2002 and 2001, calculated in
compliance with Thrift Bulletin No. 13A:
At June 30,
--------------------------------------------------------------------------
2002 2001
--------------------------------- ---------------------------------
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)
- ------------- ------------ ---------------- ----------- ---------------
+300 7% 9.65% 7% 7.95%
+200 5% 9.65% 4% 8.14%
+100 3% 9.59% 2% 8.33%
0 0% 9.46% 0% 8.50%
-100 -3% 9.09% -2% 8.57%
-200 (3) N/A N/A -5% 8.63%
-300 (3) N/A N/A -7% 8.70%
(1) The percentage difference between net interest margin in a stable interest
rate environment and net interest margin as projected under the various
rate change environments.
(2) The net portfolio value of the Company in a stable interest rate
environment and the net portfolio value as projected under the various rate
change environments.
(3) Sensitivity indicated by a decrease of 200 and 300 basis points are not
deemed meaningful at June 30, 2002 given the historically low absolute
level of interest rates at that time.
25
COMPARISON FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
Results of Operations
The Corporation recorded net income of $7.9 million or $0.84 per diluted
share for the second quarter of 2002. This compares to $4.7 million, or $0.48
per diluted share, for the same quarter last year. The results for the second
quarter of 2002 are due to the fundamentally strong performance at WSFS'
community bank and WF. WF provided $2.2 million in net income or $0.23 per
diluted share for the second quarter of 2002 which compares to $814,000 or $0.08
per diluted share for the second quarter of 2001. In addition, second quarter
results include the continued strong performance of the Corporation's reverse
mortgage portfolio, providing $1.9 million pretax, or $1.1 million after tax
($0.12 per diluted share), more than the expected long-term yield of this
portfolio.
Net income for the six months ended June 30, 2002 was $17.3 million or
$1.85 per diluted share. This compares to $8.4 million, or $0.84 per share, for
the comparable period last year. The results for the first six months of 2002
include the continued strong performance of the community bank and WF. WF
provided $3.9 million in net income or $0.41 per share for the six months ended
June 30, 2002 which compares to $1.0 million or $0.10 per diluted share for the
same period in 2001. Also, the reverse mortgage portfolio contributed $6.9
million pretax, or $4.1 million after tax, ($0.44 per diluted share), more than
the expected long-term yield of this portfolio. In addition, the Corporation
recognized $703,000, net of taxes, or $0.08 per share, in income related to the
adoption of Statement of Financial Accounting Standards (SFAS) No. 142, in the
first quarter of 2002.
26
Net Interest Income
The following tables provide information concerning the balances, yields
and rates on interest-earning assets and interest-bearing liabilities during the
periods indicated.
Three Months Ended June 30,
--------------------------------------------------------------------------------
2002 2001(6)
------------------------------------- ------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate (1)
--------- ----------- -------- ------- -------- ---------
Assets: (Dollars in Thousands)
Interest-earning assets:
Loans (2) (3):
Real estate loans (4).................... $ 648,586 $ 11,308 6.97% $ 632,156 $ 12,666 8.01%
Commercial loans ........................ 196,768 2,882 6.36 146,954 2,817 8.35
Consumer loans........................... 192,097 3,950 8.25 174,387 4,067 9.35
----------- --------- ----------- ----------
Total loans............................ 1,037,451 18,140 7.10 953,497 19,550 8.32
Mortgage-backed securities (5)................ 151,894 2,186 5.76 168,576 2,630 6.24
Loans held-for-sale (3)....................... 76,337 2,033 10.65 34,406 842 9.79
Loans of business held-for-sale............... 40,729 685 6.73 15,665 335 8.55
Investment securities (5)..................... 12,328 218 7.07 16,265 286 7.03
Investments of businesses held-for-sale....... 271,854 2,548 3.75 241,143 3,685 6.11
Investment in reverse mortgages............... 35,565 4,103 46.15 32,922 3,150 38.27
Other interest-earning assets ................ 26,247 201 3.07 40,781 538 5.29
----------- --------- ----------- ----------
Total interest-earning assets............ 1,652,405 30,114 7.36 1,503,255 31,016 8.33
--------- ----------
Allowance for loan losses..................... (21,160) (21,486)
Cash and due from banks....................... 113,821 74,925
Net assets from discontinued operations....... 86,589 171,210
Other assets of businesses held-for-sale...... 6,537 5,704
Other noninterest-earning assets.............. 54,600 44,786
----------- ------------
Total assets............................. $ 1,892,792 $ 1,778,394
=========== ============
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand......................... $ 88,805 106 0.48 $ 82,609 252 1.22
Savings.................................. 311,292 758 0.98 301,631 1,986 2.64
Retail time deposits .................... 247,302 1,945 3.15 270,308 3,480 5.16
Jumbo certificates of deposits .......... 12,495 87 2.79 35,388 437 4.95
Brokered certificates of deposit......... - - - 71,236 1,196 6.73
----------- --------- ------------ ----------
659,894 2,896 1.76 761,172 7,351 3.87
Deposits of businesses held-for-sale 300,909 1,451 1.93 255,665 2,737 4.29
----------- --------- ------------ ----------
Total interest-bearing deposits 960,803 4,347 1.81 1,016,837 10,088 3.98
FHLB of Pittsburgh advances................... 453,198 5,250 4.58 351,934 5,105 5.74
Trust preferred borrowings.................... 50,000 850 6.73 50,000 804 6.36
Other borrowed funds.......................... 117,607 815 2.77 95,230 1,403 5.89
Cost of funding discontinued operations....... (647) (2,606)
----------- --------- ------------ ----------
Total interest-bearing liabilities....... 1,581,608 10,615 2.68 1,514,001 14,794 3.91
--------- ----------
Noninterest-bearing demand deposits........... 161,017 135,321
Noninterest bearing demand deposits of
businesses held-for-sale................... 8,886 4,263
Other liabilities of businesses held-for-sale. 1,592 881
Other noninterest-bearing liabilities......... 20,232 18,688
Minority interest ............................ 5,756 4,641
Stockholders' equity.......................... 113,701 100,599
----------- ------------
Total liabilities and stockholders' equity.... $ 1,892,792 $ 1,778,394
=========== ============
Excess (deficit) of interest-earning assets
over interest-bearing liabilities........ $ 70,797 $ (10,746)
=========== ============
Net interest and dividend income.............. $ 19,499 $ 16,222
========= ==========
Interest rate spread.......................... 4.68% 4.42%
===== =====
Net interest margin........................... 4.79% 4.39%
===== =====
(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
(6) For comparative purposes, balances of C1FN and UAB are shown as businesses
held-for sale in 2001.
27
2002 2001(6)
---------------------------------- ----------------------------------
Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate(1)
--------- -------- ------- ---------- -------- --------
(Dollars in Thousands)
Assets:
Interest-earning assets:
Loans (2) (3):
Real estate loans (4)............... $ 651,735 $ 22,852 7.01% $ 631,263 $ 25,398 8.05%
Commercial loans ................... 190,420 5,583 6.42 144,797 5,633 8.51
Consumer loans...................... 191,219 7,886 8.32 173,462 8,250 9.59
------- --------- ---------- ---------
Total loans....................... 1,033,374 36,321 7.14 949,522 39,281 8.39
Mortgage-backed securities (5)........... 132,974 3,817 5.74 173,732 5,503 6.34
Loans held-for-sale (3).................. 73,079 3,838 10.50 29,573 1,475 9.98
Loans of business held-for-sale.......... 39,300 1,321 6.72 13,079 544 8.32
Investment securities (5)................ 12,964 455 7.02 16,485 582 7.06
Investments of businesses held-for-sale.. 264,390 5,095 3.85 226,417 7,162 6.33
Investment in reverse mortgages.......... 34,424 11,097 64.47 33,562 4,934 29.40
Other interest-earning assets ........... 33,531 547 3.29 40,269 1,153 5.77
---------- -------- ---------- ---------
Total interest-earning assets....... 1,624,036 62,491 7.77 1,482,639 60,634 8.26
-------- --------
Allowance for loan losses................ (21,159) (21,506)
Cash and due from banks.................. 103,839 69,444
Net assets from discontinued operations.. 95,592 180,746
Other assets of businesses held-for-sale. 7,032 5,199
Other noninterest-earning assets......... 55,038 43,101
---------- ----------
Total assets........................ $1,864,378 $1,759,623
========== ==========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand.................... $ 87,387 211 0.49 $ 79,537 558 1.41
Savings............................. 311,139 1,571 1.02 299,214 4,541 3.06
Retail time deposits ............... 250,124 4,187 3.38 269,981 6,981 5.21
Jumbo certificates of deposits ..... 11,459 163 2.87 25,257 654 5.22
Brokered certificates of deposit.... 277 10 7.28 100,686 3,369 6.75
---------- -------- ----------- --------
660,386 6,142 1.88 774,675 16,103 4.19
Deposits of businesses held-for
-sale............................ 293,488 2,830 1.94 237,378 5,371 4.56
---------- -------- ------------- --------
Total interest-bearing deposits... 953,874 8,972 1.90 1,012,053 21,474 4.28
FHLB of Pittsburgh advances.............. 459,177 10,533 4.56 343,680 10,103 5.85
Trust preferred borrowings............... 50,000 1,486 5.91 50,000 1,768 7.03
Other borrowed funds..................... 98,859 1,451 2.94 94,816 2,841 5.99
Cost of funding discontinued operations.. - (1,402) (5,598)
---------- -------- ----- -----------
Total interest-bearing liabilities.. 1,561,910 21,040 2.69 1,500,549 30,588 4.08
-------- --------
Noninterest-bearing demand deposits...... 157,903 131,668
Noninterest bearing demand deposits of
businesses held-for-sale.............. 8,867 3,055
Other liabilities of businesses held-for
-sale................................. 1,394 671
Other noninterest-bearing liabilities.... 18,712 18,204
Minority interest ....................... 6,000 5,005
Stockholders' equity..................... 109,592 100,471
---------- ----------
Total liabilities and stockholders'
equity................................ $1,864,378 $1,759,623
========== ==========
Excess (deficit) of interest-earning
assets over interest-bearing
liabilities......................... $ 62,126 $ (17,910)
========== ==========
Net interest and dividend income...... $ 41,451 $ 30,046
======== =========
Interest rate spread.................. 5.08% 4.18%
==== ====
Net interest margin................... 5.17% 4.13%
==== ====
(1) Weighted average yields have been computed on a tax-equivalent basis.
(2) Nonperforming loans are included in average balance computations.
(3) are reflected net of unearned income.
(4) Includes commercial mortgage loans.
(5) Includes securities available-for-sale
(6) For comparative purposes, balances of C1FN and UAB are shown as businesses
held-for sale in 2001
28
The following discussion of net interest income includes interest income,
interest expense and its corresponding interest earning assets and interest
bearing liabilities of businesses held-for-sale consistent with the average
balance sheet presentation above.
Net interest income for the three months ended June 30, 2002 increased $3.3
million compared to the same period in 2001, and the net interest margin for the
three months ended June 30, 2002 was 4.79% compared to 4.39% in the second
quarter of 2001. Total interest income decreased $902,000 between comparable
quarters. Although total interest-earning assets increased by $149.2 million
between the quarters, driven by an increase in average loans and loans
held-for-sale of $150.9 million, the yield on interest earning assets declined
97 basis points between comparable quarters, driven by a series of continuing
interest rate decreases. This was partially offset by an increase in the reverse
mortgage yield from 38.27% to 46.15% between comparable quarters. Management
expects the long-term yield of reverse mortgages in the future to be closer to
25%. However, as in the past, returns on reverse mortgages can vary
significantly between periods as they are affected by actual and estimated
housing prices and the timing of cash flows. Total interest expense for the
three months ended June 30, 2002 decreased $4.2 million compared to the second
quarter of 2001. The decrease was a result of the lower cost of borrowings due
mainly to the continuing interest rate decreases, as maturing deposits and
borrowings were replaced at lower rates. Total interest-bearing liabilities
actually increased by $67.6 million between periods. The rate on interest
bearing liabilities declined 1.23% between periods.
Net interest income for the six months ended June 30, 2002 increased $11.4
million compared to the same period in 2001. The increase was due primarily to
lower borrowing costs as $100.7 million in higher costing brokered deposits
matured and were replaced with lower costing borrowings as the rates throughout
the last two quarters of 2001. The net interest margin for the six months ended
June 30, 2002 was 5.17%, compared to 4.13% for the six months ended June 30,
2001. Total interest income increased $1.9 million between comparable periods.
This change is attributed to the increase in the reverse mortgage adjustment
between periods of $6.1 million, offset by a decrease in average mortgage-backed
securities and investment securities of $40.8 million and the effect of the
aforementioned interest rate changes. Total interest expense decreased $9.5
million when comparing the six months ended June 30, 2002 with the same period
in 2001. The decrease was a result of the lower cost of borrowings due to the
aforementioned interest rate decreases and a decrease in average
interest-bearing deposits of $58.2 million from June 30, 2001, offset partially
by an increase in average borrowings of $119.5 million between comparable
periods.
Allowance for Loan Losses
The Corporation maintains allowances for credit losses and charges losses
to these allowances when such losses are realized. The determination of the
allowance for loan losses requires significant management judgment reflecting
management's best estimate of probable loan losses related to specifically
identified loans as well as probable loan losses in the remaining loan
portfolio. Management's evaluation is based upon a continuing review of these
portfolios, with consideration given to examinations performed by regulatory
authorities.
Management establishes the loan loss allowance in accordance with the
guidance provided in the Securities and Exchange Commission's Staff Accounting
Bulletin 102 (SAB 102). Its methodology for assessing the appropriateness of the
allowance consists of several key elements which include: specific allowances
for identified problem loans; formula allowances for commercial and commercial
real estate loans; and allowances for pooled homogenous loans.
Specific reserves are established for certain loans in cases where
management has identified significant conditions or circumstances related to a
specific credit that management believes indicate the probability that a loss
has been incurred.
The formula allowances for commercial and commercial real estate loans are
calculated by applying loss factors to outstanding loans in each case based on
the internal risk grade of loans. Changes in risk grades of both performing and
nonperforming loans affect the amount of the formula allowance. Loss factors by
risk grade have a basis in WSFS' historical loss experience for such loans and
may be adjusted for significant factors that, in management's judgment, affect
the collectability of the portfolio as of the evaluation date. (See discussion
of historical loss adjustment factors below.)
Pooled loans are loans that are usually smaller, not-individually-graded
and homogenous in nature, such as consumer installment loans and residential
mortgages. Pooled loan loss allowances are based on historical net charge-offs
for six years which management believes approximates an average business cycle.
The average loss allowance per homogenous pool is based on the product of
average annual historical loss rate and the average estimated duration of the
pool multiplied by the
29
pool balances. These separate risk pools are then assigned a reserve for losses
based upon this historical loss information, as adjusted for historical loss
adjustment factors. Historical loss adjustment factors are based upon
management's evaluation of various current conditions. The evaluation of the
inherent loss with respect to these more current conditions is subject to a
higher degree of uncertainty because they are not identified with specific
credits. The more current conditions, evaluated in connection with the
adjustment factors, include an evaluation of the following:
>> General economic and business conditions affecting WSFS' key lending areas,
>> Credit quality trends (including trends in nonperforming loans expected to
result from existing conditions),
>> Recent loss experience in particular segments of the portfolio,
>> Collateral values and loan-to-value ratios,
>> Loan volumes and concentrations, including changes in mix,
>> Seasoning of the loan portfolio,
>> Specific industry conditions within portfolio segments,
>> Bank regulatory examination results, and
>> Other factors, including changes in quality of the loan origination,
servicing and risk management processes.
WSFS' loan officers and risk managers meet monthly to discuss and review
these conditions and risks associated with individual problem loans. By
assessing the probable estimated losses inherent in the loan portfolio on a
monthly basis, management is able to adjust specific and inherent loss estimates
based upon the availability of more recent information. The provision for loan
losses increased from $845,000 for the first six months of 2001 to $1.4 million
for the first six months of 2002, primarily a result of an increase in net
chargeoffs and growth in commercial loans from period to period.
The following table represents a summary of the changes in the allowance
for loan losses during the periods indicated.
Six Months Ended Six Months Ended
June 30, 2002(1) June 30, 2001(1)
---------------- ----------------
(Dollars in Thousands)
Beginning balance .......................... $21,597 $21,423
Provision for loan losses (2) .............. 1,357 845
Charge-offs:
Residential real estate ............... 619 92
Commercial real estate (3) ............ 333 -
Commercial............................. 354 300
Consumer .............................. 860 486
---------- -------
Total charge-offs................... 2,166 878
--------- -------
Recoveries:
Residential real estate ............... 11 1
Commercial real estate (3) ............ 176 41
Commercial ............................ 410 81
Consumer............................... 236 53
---------- -------
Total recoveries ................... 833 176
---------- -------
Net charge-offs ............................ 1,333 702
--------- -------
Ending balance.............................. $21,621 $21,566
======= =======
Net charge-offs to average gross loans
outstanding, net of unearned income (4)... 0.25% 0.15%
========== =======
(1) Includes businesses held for sale
(2) Includes the provision for loan losses of businesses held for sale of
$146,000 and $153,000 for the six months ended June 30, 2002 and 2001,
respectively. These provisions are included in losses from businesses
held-fo- sale on the statement of operations.
(3) Includes commercial mortgage and construction loans.
(4) Ratio for the six months ended June 30, 2002 and 2001 is annualized.
30
Other Income
Other income for the quarter ended June 30, 2002 was $19.4 million compared
to $9.4 million for the second quarter of 2001. This increase was mainly due to
an increase of $9.6 million in gains on the sales of loans during the second
quarter of 2002 compared to the second quarter of 2001. This increase reflects
the continued expansion of WF's market share within existing regions and growth
due to geographical expansion into new regions enhanced by the current mortgage
refinance market. In addition, credit/debit card and ATM income increased
$315,000 over the same period in 2001. This reflects higher credit and debit
card usage and the expansion of the ATM network.
Other income for the six months ended June 30, 2002 was $36.1 million
compared to $16.8 million for the same period in 2001. Consistent with the
quarter, this improvement was mainly due to an $18.4 million increase in gains
on the sale of loans, which was predominantly attributable to WF. The remainder
of the growth in other income for the six months ended June 30, 2002 reflected
higher credit and debit card usage, the expansion of the ATM network, and growth
in loans and deposits.
Other Expenses
Other expenses for the quarter ended June 30, 2002 were $20.1 million or
$3.5 million above the second quarter of 2001. The majority of this increase
resulted from a $4.0 million increase in salaries, benefits and other
compensation expenses, of which $3.6 million related to the production and sales
growth of WF. Professional fees increased $824,000 over the same period of 2001,
which included consulting fees of $444,000 related to the Corporation's
Technology, Organizational and Process Simplification (TOPS) process
reengineering program. Note however, that there was a non-cash charge of $1.1
million recorded in the second quarter of 2001 in connection with the exit of
six in-store branch offices in southeastern Pennsylvania.
Other expenses for the six months ended June 30, 2002 were $39.4 million
compared to $30.6 million for the same period of 2001. This increase, consistent
with the quarter, was mainly due to an $8.8 million increase in salaries,
benefits and other compensation expenses, of which $7.5 million related to the
production and sales growth of WF. Professional fees increased $1.3 million over
the first six months of 2001. Consulting fees related to the Corporation's TOPS
process reengineering program were $907,000. As mentioned, there was a non-cash
charge of $1.1 million recorded in the second quarter of 2001, in connection
with the exit of six in-store branch offices in southeastern Pennsylvania.
In addition, under the previously announced Technology, Organizational and
Process Simplification Plan (TOPS), an initiative designed to simplify the
organization, better integrate technology solutions and re-engineer certain back
office processes, the Corporation incurred $337,000 in expenses, net of cost
savings, in the second quarter of 2002 and $1.1 million during the first six
months of 2002. These net expenses primarily consisted of consulting fees and
severance charges, partially offset by personnel cost savings. Net of tax, this
amounted to $213,000, or $.02 per share, for the second quarter of 2002 and
$679,000, or $0.07 per share, for the six months ended June 30, 2002. Consistent
with previous announcements, the projected savings coming from the TOPS
initiative are expected to offset costs during the second half of 2002. When
fully implemented in mid-2003, the TOPS program is expected to result in total
annual pre-tax cost savings of approximately $3.0 million to $3.5 million, or
$.19 to $.23 per share, after tax.
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 three and six months ended June 30, 2002
of $4.7 million and $10.3 million, respectively, compared to an income tax
provision of $2.2 million and $3.8 million, for the comparable periods of 2001.
The effective tax rates for both the three and six months ended June 30, 2002
was 37% compared to 32% and 31%, for the respective comparable periods in 2001.
The increases, in the effective rates are primarily a consequence of the
increase in taxable income from the 2002 periods over the 2001 periods. It is
also the result of recognizing certain state tax benefits in 2001 that had
previously been unrecorded.
31
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, 2002 the Corporation adopted SFAS 142, Goodwill and Other
Intangible Assets. Statement 142 addresses financial accounting and reporting
for acquired goodwill and other intangible assets and supersedes APB Opinion 17,
Intangible Assets. It also addresses how intangible assets that are acquired
individually or with a group of other assets (i.e. those not acquired in a
business combination) should be accounted for in financial statements upon their
acquisition. Statement 142 also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements. Under this standard goodwill can no longer be amortized
but instead must be tested for impairment and its value adjusted accordingly.
Negative goodwill is required to be taken into earnings immediately upon
adoption.
The Corporation had $1.2 million in negative goodwill associated with the
1994 purchase of Providential Home Income Plan, Inc., a former subsidiary that
was subsequently merged into the Bank. As a result of adopting this standard,
the Corporation recognized income of $703,000 in the first quarter of 2002 as a
cumulative effect of a change in accounting principle, net of $469,000 in income
tax. Prior to adoption, the Corporation had been accreting $36,000 per quarter
into interest income.
In addition, the Corporation has $958,000 in goodwill related to its
investment in C1FN. This goodwill has been evaluated and, given the pending sale
of C1FN at a premium to book value, management has determined that no impairment
adjustment is necessary. However, if the sale of C1FN is not consummated in a
timely manner, it is likely that impairment of the C1FN investment and other
liquidation costs will result. Prior to January 1, 2002, the Corporation had
been amortizing $19,000 of goodwill per quarter into expense.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued Statement 143, Accounting for Asset
Retirement Obligations. Statement 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. Statement 143 applies to all
entities. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and (or) the normal operation of a long-lived asset, except for certain
obligations of lessees. Statement 143 is effective for fiscal years beginning
after June 15, 2002. Management has not yet determined the impact, if any, to
earnings, financial condition or equity upon adoption of this statement.
In August 2001, the FASB issued Statement 144, Accounting for Impairment or
Disposal of Long-Lived Assets. Statement 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. Statement 144
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and
reporting provisions of APB Opinion 30, Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for
the disposal of a segment of a business. Statement 144 also amends ARB 51,
Consolidated Financial Statements, to eliminate the exception to consolidation
for a subsidiary for which control is likely to be temporary. Statement 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and interim periods within those fiscal years. Adoption of
this standard on January 1, 2002 did not have a material impact, to earnings,
financial condition or equity of the company.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement rescinds FASB Statement No. 4, Reporting Gains and
Losses from Extinguishment of Debt, and an amendment of that Statement, FASB
Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements. This Statement also rescinds FASB Statement No. 44, Accounting for
Intangible Assets of Motor Carriers. This Statement amends FASB Statement No.
13, Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions.
32
The provisions of this Statement related to the rescission of Statement 4
shall be applied in fiscal years beginning after May 15, 2002. Any gain or loss
on extinguishment of debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria in Opinion 30 for
classification as an extraordinary item shall be reclassified. Early application
of the provisions of this Statement related to the rescission of Statement 4 is
encouraged.
The provisions in paragraphs 8 and 9(c) of this Statement related to
Statement 13 shall be effective for transactions occurring after May 15, 2002,
with early application encouraged. All other provisions of this Statement shall
be effective for financial statements issued on or after May 15, 2002, with
early application encouraged.
Early application of the provisions of this Statement may be as of the
beginning of the fiscal year or as of the beginning of the interim period in
which this Statement is issued. Management does not expect the adoption of this
Statement to have an impact on the Corporation's earnings, financial condition
or equity.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
The standard nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)."
The provisions of this Statement are to be applied prospectively for exit
or disposal activities that are initiated after December 31, 2002, with early
application encouraged. Management does not expect the adoption of this
Statement to have an impact on the Corporation's earnings, financial condition
or equity.
FORWARD LOOKING STATEMENTS
Within this report and financial statements, management has 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. Management has used "forward looking
statements" to describe the future plans and strategies including 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 uncertainty of estimates and changes in
federal and state regulation, among other factors. These factors should be
considered in evaluating the "forward looking statements," and undue reliance
should not be placed on such statements. Actual results may differ materially
from management expectations. WSFS Financial Corporation does not undertake and
specifically disclaims any obligation to publicly release the result of any
revisions that may be made to any forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after the
date of 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 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 99.1 - Certification pursuant to 18 U.S.C. Section 1350
(b) None.
33
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: August 14, 2002 /s/ MARVIN N. SCHOENHALS
-----------------------------------------------
Marvin N. Schoenhals
Chairman, President and Chief Executive Officer
Date: August 14, 2002 /s/ MARK A. TURNER
------------------------------------------------
Mark A. Turner
Chief Operating Officer and Chief Financial
Officer