UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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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
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(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 by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). YES (X) NO ( )
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of May 5, 2003:
Common Stock, par value $.01 per share 7,725,442
- -------------------------------------- ---------
(Title of Class) (Shares Outstanding)
WSFS FINANCIAL CORPORATION
FORM 10-Q
INDEX
PART I. Financial Information
Page
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Item 1. Financial Statements
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Consolidated Statement of Operations for the Three Months Ended
March 31, 2003 and 2002 (Unaudited)............................ 3
Consolidated Statement of Condition as of March 31, 2003
(Unaudited) and December 31, 2002................................ 5
Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 2003 and 2002 (Unaudited).............................. 6
Notes to the Consolidated Financial Statements for the Three
Months Ended March 31, 2003 and 2002 (Unaudited)................. 8
Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations........................................ 16
-------------------------
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 25
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Item 4. Disclosure Controls and Procedures .............................. 25
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PART II. Other Information
Item 1. Legal Proceedings................................................ 26
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Item 2. Changes in Securities and Uses of Proceeds....................... 26
------------------------------------------
Item 3. Defaults upon Senior Securities.................................. 26
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Item 4. Submission of Matters to a Vote of Security Holders.............. 26
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Item 5. Other Information................................................ 27
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Item 6. Exhibits and Reports on Form 8-K. .............................. 27
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Signatures ............................................................... 28
Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 . 29
2
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Three months ended March 31,
----------------------------
2003 2002
---- ----
(unaudited)
(Dollars in Thousands)
Interest income:
Interest and fees on loans ............................................ $ 17,862 $ 18,227
Interest on mortgage-backed securities ................................ 3,482 1,630
Interest and dividends on investment securities ....................... 251 239
Interest on investments in reverse mortgages .......................... (77) 6,994
Other interest income ................................................. 389 346
-------- --------
21,907 27,436
-------- --------
Interest expense:
Interest on deposits .................................................. 2,479 3,248
Interest on Federal Home Loan Bank advances ........................... 4,481 4,528
Interest on federal funds purchased and securities sold under
agreements to repurchase ............................................ 140 536
Interest on trust preferred borrowings ................................ 496 636
Interest on other borrowings .......................................... 96 100
Cost of funding businesses held-for-sale .............................. -- (568)
-------- --------
7,692 8,480
-------- --------
Net interest income ................................................... 14,215 18,956
Provision for loan losses ............................................. 775 707
-------- --------
Net interest income after provision for loan losses ................... 13,440 18,249
-------- --------
Noninterest income:
Loan servicing fee income ............................................. 672 791
Deposit service charges ............................................... 1,905 2,025
Credit/debit card and ATM income ...................................... 2,173 1,648
Gain on sale of loans ................................................. 404 19
Other income .......................................................... 656 541
-------- --------
5,810 5,024
-------- --------
Noninterest expenses:
Salaries, benefits and other compensation ............................. 6,819 6,342
Equipment expense ..................................................... 933 1,023
Data processing and operations expense ................................ 677 895
Occupancy expense ..................................................... 988 941
Marketing expense ..................................................... 407 314
Professional fees ..................................................... 501 820
Other operating expenses .............................................. 2,645 1,691
-------- --------
12,970 12,026
-------- --------
Income from continuing operations before taxes and cumulative effect of
change in accounting principle ...................................... 6,280 11,247
Income tax provision .................................................. 2,199 4,160
-------- --------
Income from continuing operations before cumulative effect of change in
accounting principle ................................................ 4,081 7,087
Cumulative effect of change in accounting principle, net of taxes ..... - 703
-------- --------
Income from continuing operations ..................................... 4,081 7,790
Income on discontinued operations of businesses held-for-sale,
net of taxes ........................................................ - 1,636
Gain on sale of businesses held-for-sale, net of taxes ................ 41,181 -
-------- --------
Net income ............................................................ $ 45,262 $ 9,426
======== ========
3
CONSOLIDATED STATEMENT OF OPERATIONS (continued)
Three Months Ended March 31,
----------------------------
2003 2002
---- ----
(unaudited)
Earnings per share:
Basic:
Income from continuing operations before cumulative effect of change in
accounting principle, net of tax benefit ............................... $ 0.49 $ 0.77
Cumulative effect of change in accounting principle, net of tax benefit ... - 0.08
------- -------
Income from continuing operations ......................................... 0.49 0.85
Income on discontinued operations of businesses held-for-sale, net of taxes - 0.18
Gain on sale of businesses held-for-sale, net of taxes .................... 4.92 -
------- -------
Net income ............................................................ $ 5.41 $ 1.03
======= =======
Diluted:
Income from continuing operations before cumulative effect of change in
accounting principle, net of tax benefit ................................ $ 0.46 $ 0.76
Cumulative effect of change in accounting principle, net of tax benefit ... - 0.08
------- -------
Income from continuing operations ......................................... 0.46 0.84
Income on discontinued operations of businesses held-for-sale, net of taxes - 0.17
Gain on sale of businesses held-for-sale, net of taxes .................... 4.62 -
------- -------
Net income ............................................................ $ 5.08 $ 1.01
======= =======
The accompanying notes are an integral part of these Financial Statements.
4
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
March 31, December 31,
2003 2002
----------- -----------
(Unaudited)
(In Thousands)
Assets
Cash and due from banks ........................................................... $ 135,061 $ 162,258
Federal funds sold and securities purchased under agreements to resell ............ - 64,045
Interest-bearing deposits in other banks .......................................... 1,180 7,476
Investment securities held-to-maturity ............................................ 10,664 10,724
Investment securities available-for-sale .......................................... 11,009 11,053
Mortgage-backed securities held-to-maturity ....................................... 30,299 39,157
Mortgage-backed securities available-for-sale ..................................... 495,927 98,081
Mortgage-backed securities trading ................................................ 11,165 11,000
Investment in reverse mortgages, net .............................................. 779 1,131
Loans held-for-sale ............................................................... 2,439 3,516
Loans, net of allowance for loan losses of $21,941 at March 31, 2003 and
$21,452 at December 31, 2002 .................................................... 1,136,239 1,075,870
Loans of businesses held-for-sale ................................................. - 117,646
Stock in Federal Home Loan Bank of Pittsburgh, at cost ............................ 31,993 21,979
Assets acquired through foreclosure ............................................... 942 904
Premises and equipment ............................................................ 13,375 13,838
Accrued interest receivable and other assets ...................................... 20,948 15,116
Other assets of businesses held-for-sale .......................................... - 3,810
Loans, operating leases and other assets of discontinued operations ............... 36,086 47,396
----------- -----------
Total assets ...................................................................... $ 1,938,106 $ 1,705,000
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing demand ...................................................... $ 185,946 $ 182,957
Money market and interest-bearing demand ........................................ 112,794 109,259
Savings ......................................................................... 304,846 292,917
Time ............................................................................ 219,401 236,793
Jumbo certificates of deposit - retail .......................................... 43,889 50,146
----------- -----------
Total retail deposits ................................................... 866,876 872,072
Jumbo certificates of deposit - non-retail ...................................... 32,844 26,324
----------- -----------
Total deposits .................................................................... 899,720 898,396
Federal funds purchased and securities sold under agreements to repurchase ........ 85,175 25,925
Federal Home Loan Bank advances ................................................... 626,463 403,500
Trust preferred borrowings ........................................................ 50,000 50,000
Other borrowed funds .............................................................. 40,592 36,581
Accrued expenses and other liabilities ............................................ 38,833 37,219
Other liabilities of businesses held-for-sale ..................................... - 57,862
----------- -----------
Total liabilities ................................................................. 1,740,783 1,509,483
----------- -----------
Minority Interest ................................................................. - 12,845
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 14,873,311
at March 31, 2003, and 14,859,721 at December 31, 2002 .......................... 149 149
Capital in excess of par value .................................................... 60,079 59,789
Accumulated other comprehensive income ............................................ (575) 904
Retained earnings ................................................................. 252,188 207,358
Treasury stock at cost, 7,046,869 shares at March 31, 2003 and 6,162,269
shares at December 31, 2002 ..................................................... (114,518) (85,528)
----------- -----------
Total stockholders' equity ........................................................ 197,323 182,672
----------- -----------
Total liabilities, minority interest and stockholders' equity ..................... $ 1,938,106 $ 1,705,000
=========== ===========
The accompanying notes are an integral part of these Financial Statements.
5
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31,
----------------------------
2003 2002
---- ----
(Unaudited)
(In Thousands)
Operating activities:
Net income ................................................................................. $ 45,262 $ 9,426
Adjustments to reconcile net income to net cash (used for) provided by operating activities:
Provision for loan losses .................................................................. 775 707
Depreciation, accretion and amortization ................................................... 2,021 1,136
Increase in accrued interest receivable and other assets ................................... (5,401) (7,412)
Origination of loans held-for-sale ......................................................... (15,096) (300,952)
Proceeds from sales of loans held-for-sale ................................................. 19,998 317,659
Increase in accrued interest payable and other liabilities ................................. 1,574 5,650
Gain on sale of segment held-for-sale ...................................................... (64,749) -
Decrease (increase) in reverse mortgage capitalized interest, net .......................... 829 (8,165)
Minority interest in net income ............................................................ - 2,405
Other, net ................................................................................. (93) 33
--------- ---------
Net cash (used for) provided by operating activities ....................................... (14,880) 20,487
--------- ---------
Investing activities:
Net decrease in interest-bearing deposits in other banks ................................... 6,296 13,263
Maturities of investment securities ........................................................ 105 807
Repayments of mortgage-backed securities held-to-maturity .................................. 8,807 10,885
Repayments of mortgage-backed securities available-for-sale ................................ 39,660 71,466
Purchases of mortgage-backed securities available-for-sale ................................. (440,937) (128,875)
Repayments on reverse mortgages ............................................................ 920 9,386
Disbursements for reverse mortgages ........................................................ (1,441) (1,681)
Sales of loans ............................................................................. - 5,986
Sale of segments held-for-sale ............................................................. 128,343 -
Purchase of loans .......................................................................... (3,539) (13,664)
Net increase in loans ...................................................................... (61,235) (13,747)
Net (increase) decrease in stock of Federal Home Loan Bank of Pittsburgh ................... (10,014) 5,250
Sales of assets acquired through foreclosure, net .......................................... 191 166
Premises and equipment, net ................................................................ (399) (603)
--------- ---------
Net cash used for investing activities ..................................................... (333,243) (41,361)
--------- ---------
Financing activities:
Net increase in demand and savings deposits ................................................ 22,463 6,869
Net decrease in time deposits .............................................................. (17,129) (938)
Receipts from FHLB borrowings .............................................................. 564,200 170,000
Repayments of FHLB borrowings .............................................................. (341,236) (235,000)
Receipts from reverse repurchase agreements ................................................ 78,475 -
Repayments of reverse repurchase agreements ................................................ (78,225) -
Net increase in federal funds purchased .................................................... 59,000 -
Net decrease in obligations under capital lease ............................................ - (36)
Dividends paid on common stock ............................................................. (432) (362)
Issuance of common stock ................................................................... 290 57
Purchase of treasury stock, net of re-issuance ............................................. (28,990) (579)
Minority interest .......................................................................... (12,845) (3,196)
--------- ---------
Net cash provided by (used for) financing activities ....................................... 245,571 (63,185)
--------- ---------
Decrease in cash and cash equivalents from continuing operations ........................... (102,552) (84,059)
Change in net assets from discontinued operations .......................................... 11,310 18,542
Cash and cash equivalents at beginning of period ........................................... 226,303 170,592
--------- ---------
Cash and cash equivalents at end of period ................................................. $ 135,061 $ 105,075
========= =========
6
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
Three Months Ended March 31,
----------------------------
2003 2002
---- ----
Supplemental Disclosure of Cash Flow Information:
- -------------------------------------------------
Cash paid for interest ................................................... $ 7,143 $ 10,106
Cash paid for income taxes, net .......................................... 23,186 3,528
Loans transferred to assets acquired through foreclosure ................. 168 40
Net change in other comprehensive income ................................. (1,479) (253)
The accompanying notes are an integral part of these financial statements
7
WSFS FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated Financial Statements include the accounts of the parent
company (WSFS Financial Corporation), WSFS Capital Trust I, Wilmington Savings
Fund Society, FSB (WSFS) and its wholly-owned subsidiaries, WSFS Investment
Group, Inc. , WSFS Reit, Inc. and WSFS Credit Corporation (WCC). As discussed in
Note 4 of the Financial Statements, the results of WSFS Credit Corporation, the
Corporation's wholly owned indirect auto financing and leasing subsidiary, are
presented as discontinued operations. In addition, the consolidated Financial
Statements include the not wholly-owned, but majority controlled, Wilmington
Finance, Inc. (WF) and CustomerOne Financial Network, Inc. (C1FN). C1FN was sold
in November 2002 and WF was sold in January 2003. These subsidiaries were
classified as businesses held-for-sale and the Statement of Operations was
retroactively restated for all periods presented. WF was classified as a
business held-for-sale on the Statement of Condition at December 31, 2002. See
Note 5 of the Financial Statements for further discussion of Businesses
Held-for-Sale.
WSFS Capital Trust I was formed in 1998 to sell Trust Preferred Securities.
The Trust invested all of the proceeds from the sale of the Trust Preferred
Securities in Junior Subordinated Debentures of the Corporation. The Corporation
used the proceeds from the Junior Subordinated Debentures for general corporate
purposes, including the redemption of higher rate debt.
WSFS Investment Group, Inc. markets various third-party insurance and
securities products to Bank customers through WSFS' branch system.
WSFS Reit, Inc. is a real estate investment trust formed in 2002 to hold
qualifying real estate assets and may be used in the future as a vehicle to
raise capital.
Certain reclassifications have been made to the prior years' Financial
Statements to conform them to the current year's presentation. All significant
intercompany transactions are eliminated in consolidation. The accompanying
unaudited financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Corporation's 2002 Annual
Report.
8
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
Three months ended March 31,
----------------------------
2003 2002
------- -------
(In Thousands, Except
Per Share Data)
Numerator:
Income from continuing operations before cumulative effect
of change in accounting principle, net of tax benefit ........................ $ 4,081 $ 7,087
Cumulative effect of change in accounting principle, net of tax benefit ........ - 703
------- -------
Income from continuing operations .............................................. 4,081 7,790
Income from discontinued operations of businesses held-for-sale, net of taxes... - 1,636
Gain on sale of businesses held-for-sale, net of taxes ......................... 41,181 -
------- -------
Net income ..................................................................... $45,262 $ 9,426
======= =======
Denominator:
Denominator for basic earnings per share -
weighted average shares ....................................................... 8,370 9,133
Effect of dilutive employee stock options ....................................... 536 183
------- -------
Denominator for diluted earnings per share -adjusted weighted average
shares and assumed exercise ................................................... 8,906 9,316
======= =======
Earnings per share:
Basic:
Income from continuing operations before cumulative effect
of change in accounting principle, net of tax benefit ........................ $ 0.49 $ 0.77
Cumulative effect of change in accounting principle, net of tax benefit ........ - 0.08
------- -------
Income from continuing operations .............................................. 0.49 0.85
Income from discontinued operations of businesses held-for-sale, net of taxes... - 0.18
Gain on sale of businesses held-for-sale, net of taxes ......................... 4.92 -
------- -------
Net income ..................................................................... $ 5.41 $ 1.03
======= =======
Diluted:
Income from continuing operations before cumulative effect
of change in accounting principle, net of tax benefit ........................ $ 0.46 $ 0.76
Cumulative effect of change in accounting principle, net of tax benefit ........ - 0.08
------- -------
Income from continuing operations .............................................. 0.46 0.84
Income from discontinued operations of businesses held-for-sale, net of taxes... - 0.17
Gain on sale of businesses held-for-sale, net of taxes ......................... 4.62 -
------- -------
Net income ..................................................................... $ 5.08 $ 1.01
======= =======
Outstanding common stock equivalents having no dilutive effect, in thousands ................. 105 54
3. VALUATION OF STOCK OPTION GRANTS
At March 31, 2003, the Corporation had two stock-based employee
compensation plans. The Corporation accounts for these plans under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and Related Interpretations. No stock-based employee
compensation cost is reflected in the net income, as all options granted under
those plans had an exercise price at least equal to the market value of the
underlying common stock on the date of grant. The following table illustrates
the effect on net income and earnings per share had the company applied the fair
value recognition provision of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation.
9
Three months ended March 31,
----------------------------
2003 2002
---- ----
(In Thousands, Except
Per Share Data)
Income from continuing operations, as reported ........................................ $4,081 $7,790
Less: Total stock-based employee compensation expense determined under fair value
based methods for all awards, net of related tax effects ..................... (196) (202)
------ ------
Pro forma income from continuing operations ........................................... $3,885 $7,588
====== ======
Earnings per share:
Basic:
------
Income from continuing operations, as reported ....................................... $ 0.49 $ 0.85
Less: Total stock-based employee compensation expense determined under fair value
based methods for all awards, net of related tax effects ..................... (0.02) $(0.02)
------ ------
Pro forma income from continuing operations .......................................... $ 0.47 $ 0.83
====== ======
Diluted:
--------
Income from continuing operations, as reported ....................................... $ 0.46 $ 0.84
Less: Total stock-based employee compensation expense determined under fair value
based methods for all awards, net of related tax effects ..................... (0.02) (0.02)
------ ------
Pro forma income from continuing operations .......................................... $ 0.44 $ 0.82
====== ======
4. Discontinued Operations of a Business Segment
WSFS Financial Corporation discontinued the operations of WCC in 2000. WCC,
which had 1,775 lease contracts and 919 loan contracts at March 31, 2003, no
longer accepts new applications but continues to service existing loans and
leases until their maturities. Management estimates that substantially all loan
and lease contracts will mature by the end of 2004.
In accordance with APB 30, which was the authoritative literature in 2000,
accounting for discontinued operations of a business segment at that time
required that the Company forecast operating results over the wind-down period
and accrue any expected net losses. The historic results of WCC's operations,
the accrual of expected losses to be incurred over the wind-down period, and the
future reported results of WCC are required to be treated as Discontinued
Operations of a Business Segment, and shown in a summary form separately from
the Company's results of continuing operations in reported results of the
Corporation.
As a result, the Corporation has established a reserve to absorb expected
future net losses of WCC. Due to the uncertainty of a number of factors,
including residual values, interest rates, credit quality and operating costs,
this reserve is re-evaluated quarterly with adjustments, if necessary, recorded
as income/losses on wind-down of discontinued operations. At March 31, 2003,
there were approximately $29.9 million of contract residuals outstanding for
which management has estimated approximately $6.3 million in future losses.
Management has inherently provided for these losses through a combination of
expected operating results of WCC (excluding residual losses), reserves for
residual losses and reserves for discontinued operations.
The following table presents the operating leases, loans and other assets
of discontinued operations at March 31, 2003 and December 31, 2002:
At March 31, At December 31,
2003 2002
------------ --------------
(In Thousands)
Vehicles under operating leases, net of reserves..... $32,794 $44,693
Loans ............................................... 5,745 7,285
Other noncash assets ................................ 2,621 2,367
Less:
Reserve for losses of discontinued operations.... 5,074 6,949
------- -------
Loans, operating leases and other assets of
discontinued operations ........................... $36,086 $47,396
======= =======
10
The following table presents the net income from discontinued operations
for the three months ended March 31, 2003 and 2002:
For the three months ended March 31,
------------------------------------
2003 2002
---- ----
(In Thousands)
Interest income ............................ $ 144 $ 302
Allocated interest expense (1) ............. 400 755
----- -----
Net interest expense ....................... (256) (453)
----- -----
Loan and lease servicing fee income ........ 111 132
Rental income on operating leases, net ..... 141 610
Other income ............................... 1 4
----- -----
Noninterest income ......................... 253 746
Noninterest expenses ....................... 180 334
----- -----
Income (loss) before taxes ................. (183) (41)
(Credit) charge to reserve for losses on
discontinued operations ................. 183 41
Income tax provision ....................... - -
----- -----
Income from discontinued operations ........ $ - $ -
===== =====
(1) Allocated interest expense for the three months ended March 31, 2003 and
2002 was a direct matched-maturity funding of the net non-cash assets of
discontinued operations. The average borrowing rates for the three months
ended March 31, 2003 and 2002 were 3.36% and 2.88%, respectively.
5. BUSINESSES HELD FOR SALE
In September 2002, WSFS sold its United Asian Bank Division (UAB). UAB was
started in 2000 as a single branch to serve the Korean and Asian communities of
Elkins Park, Pennsylvania and the surrounding area. The sale resulted in an
after tax gain of $737,000 and included $8.6 million in deposits and $15.8
million in loans in addition to branch fixed assets and the lease obligations.
In November 2002, the Corporation completed the sale of C1FN and related
interests in its Everbank Division to Alliance Capital Partners, Inc., the
privately held parent company of First Alliance Bank, a federally chartered
savings bank. Everbank was started with C1FN in 1999 as a joint initiative in
Internet and branchless banking. Consistent with the manner in which the segment
was managed and operated, information in this report labeled "C1FN" generally
represents the pro forma combined results of C1FN and WSFS' Everbank Division
(the C1FN/Everbank segment). The sale included total assets of $342.8 million
and deposits of $340.1 million. WSFS recorded an after tax gain of $187,000 on
this sale.
Under a provision of the agreement between sellers and buyers, certain sale
consideration was withheld in two separate escrow accounts pending the
resolution of certain events. WSFS' portion of these escrow amounts totaled
approximately $786,000. These amounts were not recognized by WSFS at December
31, 2002, as their receipt is not assured beyond a reasonable doubt. In March
2003, management received $175,000 of the $786,000 held in escrow. As a result,
management recorded the $175,000 ($117,000 after taxes) as a gain on the sale of
businesses held-for-sale in the first quarter of 2003. See Note 10 of the
Financial Statements for further discussion.
Also in November 2002, WSFS signed a definitive agreement with American
General Finance, Inc. for the sale of WSFS' majority-owned subsidiary,
Wilmington Finance, Inc. (WF). WF is engaged in sub-prime residential mortgage
banking. WF conducts activity on a national level and aggregates loans primarily
through brokers and sells them to investors. The WF sale was completed on
January 2, 2003 for an after tax gain of $41.1 million.
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, income (losses) from these three businesses (UAB,
C1FN/Everbank and WF) have been presented as income/losses of businesses
held-for-sale, and presented separately for all periods presented.
The gains realized on the sale of C1FN and WF are presented on the
statement of operations, net of tax. The average balance sheet is presented with
total assets and liabilities of businesses held-for-sale displayed separately.
11
The following table presents the net income from businesses held-for-sale
for the three months ended March 31, 2002. No activity other than the $41.1
million after tax gain on the sale of WF and the $117,000 additional after tax
gain on C1FN was recorded in the first quarter of 2003:
For the Three Months Ended March 31, 2002
-----------------------------------------
WF1 C1FN UAB Total
------- ------- ------- -------
(In Thousands)
Net interest income ....................... $ 1,183 $ 1,548 $ 265 $ 2,996
Provision for loan losses ................. - 30 18 48
------- ------- ------- -------
Net interest income after provision ....... 1,183 1,518 247 2,948
Noninterest income ........................ 11,649 1,011 24 12,684
------- ------- ------- -------
Total revenues ............................ 12,832 2,529 271 15,632
Noninterest expenses ...................... 7,371 2,799 403 10,573
------- ------- ------- -------
Income before taxes and minority interest.. 5,461 (270) (132) 5,059
Minority interest ......................... 2,686 (281) - 2,405
------- ------- ------- -------
Income before taxes ....................... 2,775 11 (132) 2,654
Provision for income taxes ................ 1,068 3 (53) 1,018
------- ------- ------- -------
Income from businesses held-for-sale ...... $ 1,707 $ 8 $ (79) $ 1,636
======= ======= ======= =======
(1) Includes $568,000 in interest expense allocated to fund the average net
assets of $71.2 million of businesses held-for-sale. The rate of 3.19% is
based on the weighted average rate on other borrowed funds, which
approximates the marginal funding rate for this niche business.
6. 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) of the cap has two components: the intrinsic
value and the time value of the option. Prior to July 1, 2002, the cap was
marked-to-market quarterly, with changes in the intrinsic value of the cap, net
of tax, included as a separate component of other comprehensive income and
changes in the time value of the option included directly as interest expense as
required under SFAS 133. In addition, the ineffective portion, if any, would
have been expensed in the period in which ineffectiveness was determined.
On July 1, 2002, as a result of a change in the guidance from the FASB for
implementation of Statement 133, the Corporation dedesignated the original cash
flow hedge and redesignated the interest rate cap so that the entire change in
the market value of the cap now is included in other comprehensive income. As
part of redesignating the new cash flow hedge, the method of assessing
effectiveness was changed. It is now based on the total change to the interest
rate cap's cash flows, and not only the change to intrinsic value, as was the
basis of assessing effectiveness under the prior hedging designation. As a
result of the change in the methodology for assessing effectiveness, the hedging
relationship is considered to be perfectly effective and can reasonably be
expected to remain so. Therefore, the full change to the fair value of interest
rate cap is recorded in other comprehensive income. The fair value of the cap is
estimated using a standard option model and quoted market prices of similar
instruments.
At July 1, 2002, the inception date of the redesignated hedging
relationship, the fair value of the interest rate cap was $1.6 million. This
amount was allocated to the respective multiple "caplets" on a fair value basis.
The change in each caplet's respective allocated fair value amount is
reclassified out of other comprehensive income and into interest expense when
each of the quarterly interest payments is made on the Trust Preferred debt. The
redesignation of the cash flow hedge has the effect of providing a more
systematic method for amortizing the cost of the cap against earnings.
Except for those discussed above, management is not aware of any events
that would result in the reclassification of gains and losses into earnings that
are currently reported in accumulated other comprehensive income.
Everbank entered 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 March 31, 2002,
Everbank had entered into such contracts with notional amounts of $66.2 million.
During the three months ended March 31, 2002, the expense
12
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 noninterest income. WSFS sold C1FN/Everbank on November 5, 2002 and
therefore had no foreign exchange contracts at March 31, 2003.
Related to its sale of reverse mortgages, in November 2002 the Corporation
acquired a series of options to acquire up to 49.9% of Class "O" certificates
issued in connection with mortgage-backed security SASCO RM-1 2002. The
aggregate exercise price of the series of options is $1.0 million. Because the
net present value of the estimated cash flows coming from WSFS' options on the
highly illiquid Class "O" certificates is significantly less than the $1.0
million exercise price, WSFS has valued the option at $0 at March 31, 2003. The
option will be evaluated quarterly for any changes in the estimated valuation.
The following depicts the change in the fair market value of the Company's
derivatives:
2003 2002
--------------------------------- -------------------------------------
At At At At
January 1, Change March 31, January 1, Change March 31,
---------- ------ --------- ---------- ------ ---------
(In Thousands)
Interest Rate Cap:
Intrinsic value - dedesignated cap .......... $ - $ - $ - $ 589 $ 269 $ 858(1)
Time value - dedesignated cap ............... - - - 1,945 (58)(2) 1,887
Redesignated cap ............................ 1,012 (39) 973(1) - - -
------- ------- ------- ------- ------- -------
Total........................................ $ 1,012 $ (39) $ 973 $ 2,534 $ 211 $ 2,745
======= ======= ======= ======= ======= =======
Foreign Exchange Contracts
Time Value .................................. N/A N/A N/A $ (395) $ 1,396 $ 1,001
======= ======= =======
Options on class "O" Certificates of MBS..... $ - $ - $ - N/A N/A N/A
(1) Included in other comprehensive income, net of taxes.
(2) Included in interest expense on the hedged item (trust preferred
borrowings).
7. COMPREHENSIVE INCOME
The following schedule reconciles net income to total comprehensive income
as required by SFAS No. 130:
For the Three Months ended March 31,
------------------------------------
2003 2002
---- ----
(In Thousands)
Net income .................................................... $ 45,262 $ 9,426
Other Comprehensive Income:
Net unrealized holding losses on securities
available-for-sale arising during the period,
net of taxes .............................................. (1,452) (427)
Net unrealized holding (losses) gains arising during the
period on derivatives used for cash flow hedge,
net of taxes .............................................. (27) 175
Reclassification adjustment for gains included in net income,
net of taxes ............................................. - (1)
-------- --------
Total comprehensive income .................................... $ 43,783 $ 9,173
======== ========
13
8. 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 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.
9. SEGMENT INFORMATION
Under the definition of SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, the Corporation consists only of its core
community banking operations and has no other operating segments. Generally,
reportable segments are business units that are managed separately, operate
under different regulations and offer different services to distinct customer
bases. Previously, WCC, C1FN and WF were classified as operating segments,
however, as a result of the discontinuance of WCC, the sale of C1FN in November
of 2003 and the sale of WF in 2003 these businesses were classified as
discontinued operations or businesses held-for-sale and no longer considered
segments. For a further discussion see Notes 4 and 5 of the Financial
Statements.
10. INDEMNIFICATIONS
Sale of C1FN/Everbank Segment. On November 5, 2002, the C1FN/Everbank
segment of WSFS was sold by WSFS and other shareholders of C1FN to Alliance
Capital Partners, Inc. and its subsidiary, First Alliance Bank, F.S.B. As is
customary in the sale of a privately-held business, certain indemnifications
were provided by the sellers in the event of costs, losses, damages, etc
(collectively, "Damages") incurred and successfully claimed by the buyer for
breaches of sellers' representations and warranties, sellers' failure to perform
under the transaction agreements, and the sellers' ownership and operation of
the business prior to sale, generally speaking. This indemnification extends for
one year from the sale date and is capped at $1,750,000 in the aggregate, which
has been placed in escrow. Buyer's damages must exceed $200,000 before any
initial claims may be made. WSFS' share of this indemnification escrow is
$611,000, which may be received by WSFS in the future if no claims are
successfully made against the indemnification. WSFS has not recognized this
portion of the sale consideration, as receipt of this amount is not assured
beyond a reasonable doubt. This amount, or portions thereof, will be recognized
if and when such assurance level is reached.
In addition to the above indemnification, WSFS separately provided
indemnification to the buyer for Damages, if any, that may result from C1FN
shareholders bringing claims against the buyer as a result of the Services
Agreement and amendments (collectively, "Services Agreements") between WSFS and
C1FN over the life of those arrangements. This indemnification was provided by
WSFS purely to facilitate the timely sale of C1FN/Everbank, and is not
specifically related to a change in an underlying asset or liability. This
indemnification extends for two years from the sale date and is capped at
approximately $8.2 million. WSFS is not aware of any claims under this
indemnification, and given the facts and circumstances surrounding both the
Services Agreements and the sale of C1FN, management of WSFS believes the
likelihood of any payments under this separate indemnification is very remote.
As a result of these circumstances, and the general nature of the
indemnification, no provision for loss has been made in WSFS' Financial
Statements at March 31, 2003.
Sale of Wilmington Finance, Inc. On January 2, 2003, Wilmington Finance,
Inc. (WF), WSFS' majority-owned subsidiary was sold to American General Finance,
Inc. As is customary in the sale of a privately-held business, certain
indemnifications were provided by WSFS and the other shareholders of WF to the
buyer.
Indemnifications provided by the sellers Damages incurred by, and
successfully claimed by the buyer and fall into 4 separate categories. These
include: (1) indemnification for sellers' ownership, which indemnification
extends indefinitely and is uncapped in amount; (2) indemnification for tax,
environmental, and benefit plan related issues, all of which indemnifications
extend for their respective statute of limitations and are uncapped in amount;
(3) breaches of sellers' representations and warranties and covenants in the
sale agreement (sellers' breaches indemnification), which extends for 18 months
from the sale date and are capped at the purchase price (approximately $123
million); and (4) protection to the buyer in the event of successful third-party
claims that result from the operation of the business prior to the sale date
(third-party claims indemnification). This third-party claims indemnification
includes time limits and dollar limits as follows: (i) for the first 12 months
after the sale the dollar limit is $57 million; (ii) from months 13 through 18
the dollar limit is $52 million; and (iii) from months 19 through 30 the dollar
limit is $32 million. Buyer must incur $2 million of damages and exhaust any
related reserves provided in the closing balance sheet before an initial dollar
claim may be made against the sellers for any third-party
14
claims and sellers' breaches indemnifications. Dollar liability is uncapped for
the indemnifying party if damages are due to willful misconduct, fraud, or bad
faith.
Generally speaking, WSFS is proportionately liable for its ownership share
of WF (which is 65%, after the exercise of its warrant just prior to sale) of
the related successful claims under indemnification provisions, except that, in
order to facilitate the sale, WSFS agreed to assume a portion of the management
shareholders' indemnification obligations. This additional indemnification
totals as much as approximately $13 million and was assumed in exchange for a
payment of $225,000 from the management shareholders. Because such payment acts
like an insurance premium, WSFS will accrete the $225,000 to income over the
life of the 30-month arrangement.
WSFS is not aware of any claims to date made under the WF indemnification
provisions that could result in payment. Further, indemnifications provided in
the WF sale agreement are general in nature and not specifically related to the
changes in an underlying asset or liability. Any potential claims related to
indemnification on repurchased loans in the normal course of business have been
provided for in the closing balance sheet and are further subject to the $2
million indemnification threshold. Therefore, given these circumstances, any
amounts that may be paid under these indemnifications provisions are neither
probable nor reasonably estimable, or have a probability-weighted net present
value of zero. As such, no additional provision for losses or deferral of sale
consideration, other than the amounts above, are contemplated as of this date.
There can be no assurances that payments, if any, under all
indemnifications provided by the Corporation will not be material or exceed
reserves that the Company may have established for such contingencies.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
WSFS Financial Corporation (the "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 (Bank or 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
investment powers than most other financial institutions. WSFS has served the
residents of the Delaware Valley for 171 years. WSFS is the largest thrift
institution headquartered in Delaware and among the three or 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 strategy of the Corporation is
to improve its status as a high-performing financial services company by
focusing on its core community banking business.
WSFS provides residential and commercial real estate, commercial and
consumer lending services, as well as retail deposit and cash management
services. Lending activities are funded primarily with retail deposits and
borrowings. Deposits are insured to their legal maximum by the Federal Deposit
Insurance Corporation (FDIC). WSFS conducted operations from its main office,
two operations centers and 21 retail banking offices located in northern
Delaware and southeastern Pennsylvania.
The Corporation has two consolidated subsidiaries, WSFS and WSFS Capital
Trust I. The Corporation has no unconsolidated subsidiaries or off-balance sheet
entities. Fully-owned and consolidated subsidiaries of WSFS include WSFS Credit
Corporation (WCC), which is engaged primarily in indirect motor vehicle leasing;
WSFS Investment Group, Inc. which markets various third-party insurance products
and securities through WSFS' branch system; and WSFS Reit, Inc., which holds
qualifying real estate assets and may be used in the future to raise capital.
WCC, which discontinued operations in 2000, had 1,775 lease contracts and
919 loan contracts at March 31, 2003. It no longer accepts new applications but
continues to service existing loans and leases until their maturities.
Management estimates that substantially all loan and lease contracts will mature
by the end of 2004. For a detailed discussion, see Note 4 to the Financial
Statements.
In addition to the wholly owned subsidiaries, WSFS had consolidated two
non-wholly owned subsidiaries, CustomerOne Financial Network, Inc. (C1FN) and
Wilmington Finance, Inc. (WF). C1FN, a 21% owned subsidiary engaged in Internet
and branchless banking, was sold in November 2002. WF, a majority owned
subsidiary, engaged in sub-prime residential mortgage banking and was sold in
January 2003. For a further discussion, see Note 5 to the Financial Statements.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of the financial condition and results of
operations are based on the Consolidated Financial Statements, which are
prepared in conformity with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and assumptions effecting the reported amounts of
assets, liabilities, revenue and expenses. Management evaluates these estimates
and assumptions on an ongoing basis, including those related to the allowance
for loan losses, the reserve for discontinued operations and income taxes.
Management bases its estimates on historical experience and various other
factors and assumptions that are believed to be reasonable under the
circumstances. These form the bases for making judgments on the carrying value
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
The following are critical accounting policies that involve more
significant judgments and estimates:
Allowance for Loan Losses
The Corporation maintains allowances for credit losses and charges losses
to these allowances when realized. The determination of the allowance for loan
losses requires significant judgment reflecting management's best estimate of
probable loan losses related to specifically identified loans as well as those
in the remaining loan portfolio. Management's evaluation is based upon a
continuing review of these portfolios, with consideration given to evaluations
resulting from examinations performed by regulatory authorities.
16
Reserve for Discontinued Operations
The Corporation discontinued the operations of WCC in 2000. In accordance
with APB 30, which was the authoritative literature in 2000, accounting for
discontinued operations of a business segment required that the Company forecast
operating results over the wind-down period and accrue any expected net losses.
As a result, the Corporation has established a reserve to absorb expected future
net losses of WCC. Due to the uncertainty of a number of factors, including
residual values, interest rates, credit quality and operating costs, this
reserve is re-evaluated quarterly with adjustments, if necessary, recorded as
income/losses on wind-down of discontinued operations.
Income Taxes
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 the Company's valuation allowances on deferred
income taxes resulting from, among other things, limitations imposed by Internal
Revenue Code and uncertainties, including the timing of settlement and
realization of these differences.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Financial Condition
Total assets increased $233.1 million during the first three months of
2003 to $1.9 billion at March 31, 2003. The investment in mortgage-backed
securities increased $389.2 million during the quarter as the Corporation
redeployed some of its excess capital into high quality mortgage-backed
securities. In addition, loans grew $60.4 million during the first quarter of
2003 to $1.1 billion. This volume reflects the continued strong growth in
commercial and commercial real estate loans of $29.9 million. Residential real
estate loans grew by $28.9 million during the same period. These increases were
partially offset by a decrease of $117.6 million in loans of businesses
held-for-sale resulting from the first quarter 2003 sale of the Corporation's
subprime mortgage banking subsidiary, WF, Inc. Cash and Federal funds sold
decreased $91.2 million due to re-directing these liquid investments into higher
yielding assets. Loans, operating leases and other assets of discontinued
operations decreased $11.3 million, due to a continued run-off in the WCC loan
and lease portfolios.
Total liabilities increased $231.3 million between December 31, 2002 and
March 31, 2003, to $1.7 billion. This increase was mainly due to a $223.0
million increase in Federal Home Loan Bank advances, primarily needed to fund
the increase in assets. Deposits increased by $1.3 million during the first
quarter of 2003, to $899.7 million.
Capital Resources
Stockholders' equity increased $14.7 million between December 31, 2002 and
March 31, 2003. This increase reflects net income of $45.3 million for the first
three months of 2003, partially offset by the purchase of 889,600 shares of
treasury stock for $29.1 million ($32.67 per share average). At March 31, 2003,
the Corporation held 7,046,869 shares of its common stock in its treasury at a
cost of $114.5 million. In addition, the Corporation declared a cash dividend
totaling $432,000 during the three months ended March 31, 2003. The increase in
stockholders' equity was also partially offset by a decline of $1.5 million in
other comprehensive income resulting primarily from the decline in the fair
value of mortgage-backed securities available-for-sale and the interest rate
cap. See Note 6 to the Financial Statements for further discussion of the
interest rate cap.
Below is a table comparing the Bank's consolidated capital position to the
minimum regulatory requirements as of March 31, 2003 (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) ........ $253,249 21.11% $95,952 8.00% $119,939 10.00%
Core Capital (to Adjusted
Tangible Assets).................. 243,499 12.50 77,914 4.00 97,393 5.00
Tangible Capital (to Tangible
Assets) .......................... 243,499 12.50 29,218 1.50 N/A N/A
Tier 1 Capital (to Risk-Weighted
Assets)........................... 243,499 20.30 N/A N/A 71,964 6.00
17
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 March 31, 2003 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.
WSFS' liquidity ratio of cash and qualified assets to net withdrawable deposits
and borrowings due within one year was 4.3% at March 31, 2003, compared to 13.3%
at December 31, 2002. The December 31, 2002 liquidity was unusually high due to
the sale of the reverse mortgage portfolio, from which cash proceeds totaled
$128 million. Management monitors liquidity daily and maintains funding sources
to meet unforeseen changes in cash requirements. The Corporation's primary
funding sources are operating earnings, deposits, repayments of loans and
investment securities, sales of loans and borrowings. In addition, the
Corporation's liquidity requirements can be satisfied through the use of its
borrowing capacity from the FHLB of Pittsburgh and other sources, the sale of
certain securities and the pledging of certain loans for other lines of credit.
Management believes these sources are sufficient to maintain the required and
prudent levels of liquidity.
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
December 31, 2002. Past due loans are loans contractually past due 90 days or
more as to principal or interest payments but which remain on accrual status
because they are considered well secured and in the process of collection.
March 31, December 31,
2003 2002
--------- --------
(Dollars in Thousands)
Nonaccruing loans:
Commercial ....................................... $ 2,839 $ 2,242
Consumer ......................................... 505 516
Commercial mortgage .............................. 467 326
Residential mortgage ............................. 2,824 3,246
Construction ..................................... 199 199
--------- --------
Total nonaccruing loans ............................... 6,834 6,529
Assets acquired through foreclosure ................... 942 904
--------- --------
Total nonperforming assets ............................ $ 7,776 $ 7,433
========= =========
Past due loans:
Residential mortgages ............................ $ 47 $ 346
Commercial and commercial mortgages .............. 43 95
Consumer ......................................... 121 88
--------- --------
Total past due loans .................................. $ 211 $ 529
========= ========
Ratios:
Nonaccruing loans to total loans (1).............. 0.59% 0.60%
Allowance for loan losses to gross loans (1)...... 1.89% 1.95%
Nonperforming assets to total assets ............. 0.40% 0.44%
Loan loss allowance to nonaccruing loans (2)...... 317.16% 324.49%
Loan and foreclosed asset allowance to total
nonperforming assets (2) ....................... 278.74% 285.03%
(1) Total loans exclude loans held for sale.
(2) The applicable allowance represents general valuation allowances only.
18
Nonperforming assets increased $343,000 between March 31, 2003 and December
31, 2002. The increase resulted primarily from a $738,000 increase in
nonaccruing commercial and commercial mortgage loans offset by a decrease of
$422,000 in nonaccruing residential mortgages. An analysis of the change in the
balance of nonperforming assets is presented below:
For the Three
Months Ended For the Year Ended
March 31, 2003 December 31, 2002
-------------- -----------------
(In Thousands)
Beginning balance................................... $ 7,433 $ 7,965
Additions ..................................... 1,922 8,442
Collections.................................... (926) (4,854)
Transfers to accrual/restructured status....... (430) (1,762)
Charge-offs / write-downs...................... (223) (2,358)
---------- ---------
Ending balance...................................... $ 7,776 $ 7,433
========== =========
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 regulations; 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
March 31, 2003, interest-earning liabilities exceeded interest-bearing assets
(interest-sensitive gap) that mature within one year by $78.2 million. The
Corporation's interest-sensitive assets as a percentage of interest-sensitive
liabilities within one year decreased to 91% at March 31, 2003 compared to 133%
at December 31, 2002. Likewise, the one-year interest-sensitive gap as a
percentage of total assets decreased to -4.04% from 11.11% at December 31, 2002.
The change is the result of the Corporation's continuing effort to effectively
manage interest rate risk. Interest rate-sensitive assets exclude cash flows
from discontinued operations as well as the interest rate-sensitive funding for
these assets of approximately $50 million in FHLB advances.
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises primarily from interest rate risk
inherent in its lending, investing, and funding activities. To that end,
management actively monitors and manages its interest rate risk exposure. One
measure 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 March 31, 2003 and 2002,
calculated in compliance with Thrift Bulletin No. 13A:
19
March 31,
--------------------------------------------------------------
2003 2002
------------------------------- -----------------------------
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 -5% 10.81% 6% 9.16%
+200 -3% 11.05% 4% 9.26%
+100 -1% 11.24% 2% 9.32%
0 0% 11.18% 0% 9.38%
-100 -1% 10.78% -3% 9.17%
-200 (3) -6% 10.66% -8% 8.96%
-300 (3) -14% 11.16% -16% 8.92%
(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 ratio of the Company in a stable interest rate
environment and the net portfolio value ratio 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 March 31, 2003 and 2002 given the historically low
absolute level of interest rates at that time.
COMPARISON FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
Results of Operations
The Corporation recorded net income of $45.3 million or $5.08 per diluted
share for the first quarter of 2003. This compares to $9.4 million or $1.01 per
diluted share for the same quarter last year. The results for the first quarter
of 2003 include a $41.1 million gain on the sale of the Corporation's subprime
mortgage banking subsidiary, Wilmington Finance, Inc. (WF). Excluding gains on
the sale of businesses, income from continuing operations was $4.1 million, or
$0.46 per diluted share compared to $7.8 million, or $0.84 per diluted share in
2002. The first quarter of 2002, however, included $7.0 million in pretax income
from reverse mortgages. Substantially all of WSFS' reverse mortgages were sold
effective October 1, 2002 at a significant pretax gain of $101.5 million.
20
Net Interest Income
The following table provides information concerning the balances, yields
and rates on interest-earning assets and interest-bearing liabilities during the
periods indicated.
Three Months Ended March 31,
------------------------------------------------------------------------------
2003 2002 (1)
------------------------------------- ----------------------------------
Average Yield/ Average Yield/
Balance Interest Rate (2) Balance Interest Rate (2)
------- -------- -------- ------- -------- --------
(Dollars in Thousands)
Assets:
Interest-earning assets:
Loans: (3) (4)
Real estate loans (5)............ $ 726,378 $ 11,318 6.23% $ 654,929 $ 11,539 7.05%
Commercial loans ................ 213,764 2,983 6.11 183,975 2,703 6.49
Consumer loans................... 185,067 3,480 7.63 190,058 3,930 8.39
---------- --------- ---------- ---------
Total loans.................... 1,125,209 17,781 6.42 1,028,962 18,172 7.17
Mortgage-backed securities (6)........ 338,040 3,482 4.12 113,843 1,630 5.73
Loans held-for-sale (3)............... 5,460 81 5.93 3,325 55 6.62
Investment securities (6)............. 21,662 251 4.63 13,607 239 7.03
Investment in reverse mortgages....... 1,108 (77) (27.08) 33,269 6,994 84.09
Other interest-earning assets ........ 80,078 389 1.97 40,896 346 3.42
---------- --------- ---------- ---------
Total interest-earning assets.... 1,571,557 21,907 5.65 1,233,902 27,436 8.98
--------- ---------
Allowance for loan losses............. (21,592) (21,159)
Cash and due from banks............... 130,004 93,746
Loans, operating leases and other assets
of discontinued operations.......... 41,911 104,695
Assets of businesses held-for-sale.... - 377,022
Other noninterest-earning assets...... 33,590 47,442
---------- ----------
Total assets..................... $1,755,470 $1,835,648
========== ==========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand................. $ 102,500 $ 106 0.42% $ 85,951 $ 107 0.50%
Savings.......................... 299,737 480 0.65 310,655 812 1.06
Retail time deposits ............ 276,375 1,788 2.63 253,120 2,243 3.59
Jumbo certificates of deposits .. 22,197 105 1.92 10,411 76 2.96
Brokered certificates of deposit. - - - 556 10 7.29
---------- --------- ---------- ---------
Total interest-bearing deposits 700,809 2,479 1.44 660,693 3,248 1.99
FHLB of Pittsburgh advances........... 482,410 4,977 4.13 465,222 5,283 4.54
Trust preferred borrowings............ 50,000 496 3.97 50,000 636 5.09
Other borrowed funds.................. 81,274 236 1.16 82,098 636 3.10
Cost of funding discontinued operations... - (496) (755)
Cost of funding businesses held-for-sale... - (568)
---------- --------- ---------- ---------
Total interest-bearing liabilities 1,314,493 7,692 2.34 1,258,013 8,480 2.70
--------- ---------
Noninterest-bearing demand deposits... 170,266 154,763
Liabilities of businesses held-for-sale - 297,303
Other noninterest-bearing liabilities. 47,632 13,885
Minority interest .................... - 6,247
Stockholders' equity.................. 223,079 105,437
---------- ----------
Total liabilities and stockholders' equity $1,755,470 $1,835,648
========== ==========
Excess (deficit) of interest-earning assets
over interest-bearing liabilities $ 257,064 $ (24,111)
========== ==========
Net interest and dividend income...... $ 14,215 $ 18,956
========= ==========
Interest rate spread.................. 3.31% 6.28%
==== ====
Net interest margin................... 3.69% 6.24%
==== ====
(1) For comparative purposes, balances of C1FN and UAB are shown as businesses
held-for sale in 2002.
(2) Weighted average yields have been computed on a tax-equivalent basis.
(3) Nonperforming loans are included in average balance computations.
(4) Balances are reflected net of unearned income.
(5) Includes commercial mortgage loans.
(6) Includes securities available-for-sale
21
Net interest income for the first quarter of 2003 was $14.2 million. This
compares to $19.0 million for the same quarter in 2002; however, the first
quarter of 2002 included $7.0 million in interest income from reverses
mortgages. Substantially all of WSFS' reverse mortgages were sold effective
October 1, 2002 at a pretax gain of $101.5 million. The net interest margin of
3.69% for the first quarter of 2003 declined from 6.24% for the first quarter of
2002. The decrease in net interest margin was significantly affected by the
above-mentioned sale of reverse mortgages. In addition, the net interest margin
was adversely impacted by liquidity generated by the sales of the reverse
mortgage portfolio and Wilmington Finance, Inc., share repurchases, and the
interest rate environment in which loan and investment rates are able to reprice
down by more than funding costs. This was partially mitigated by WSFS'
significant growth in loans and the continuing positive effect of the change in
WSFS' deposit mix to nininterest demand accounts and lower rate money market
accounts.
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
accounting principles generally accepted in the United States of America and
guidance provided in the Securities and Exchange Commission's Staff Accounting
Bulletin 102 (SAB 102). The 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 where management has
identified significant conditions or circumstances related to a specific credit
that management believes the probability of a loss has been incurred.
The formula allowances for commercial and commercial real estate loans are
calculated by applying loss factors to outstanding loans based on the internal
risk grade of each loan. 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 seven years which, in management's opinion, 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 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:
o General economic and business conditions affecting WSFS' key lending areas,
o Credit quality trends (including trends in nonperforming loans expected to
result from existing conditions),
o Recent loss experience in particular segments of the portfolio,
o Collateral values and loan-to-value ratios,
o Loan volumes and concentrations, including changes in mix,
o Seasoning of the loan portfolio,
o Specific industry conditions within portfolio segments,
o Bank regulatory examination results, and
o 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 the
monthly assessment of the probable estimated losses inherent in the loan
portfolio, management is able to adjust specific and inherent loss estimates
based upon the availability of more recent information. The provision for loan
losses from continuing operations increased from $707,000 for the first three
months of 2002 to $775,000 for the first three months of 2003, primarily a
result of growth in commercial loans from period to period.
22
The Corporation maintains allowances for credit losses and charges losses
to these allowances when such losses are realized. The allowances for losses are
maintained at a level which management considers adequate to provide for losses
based upon an evaluation of known and inherent risks in the portfolios.
Management's evaluation is based upon a continuing review of the portfolios.
The following table represents a summary of the changes in the allowance
for loan losses during the periods indicated.
Three Months Ended Three Months Ended
March 31, 2003 March 31, 2002
-------------- --------------
(Dollars in Thousands)
Beginning balance ................................. $21,452 $21,597
Provision for loan losses of continuing operations 775 707
Provision for loan losses, businesses held-for-sale - 48
Charge-offs:
Residential real estate ...................... 66 598
Commercial real estate (1) ................... - 284
Commercial ................................... 105 145
Consumer ..................................... 197 430
------- -------
Total charge-offs ......................... 368 1,457
------- -------
Recoveries:
Residential real estate ...................... - -
Commercial real estate (1) ................... 40 21
Commercial ................................... 21 10
Consumer ..................................... 21 69
------- -------
Total recoveries .......................... 82 100
------- -------
Net charge-offs ................................... 286 1,357
------- -------
Ending balance .................................... $21,941 $20,995
======= =======
Net charge-offs to average gross loans
outstanding, net of unearned income (2) ......... 0.10% 0.51%
======= =======
(1) Includes commercial mortgage and construction loans.
(2) Ratios for the three months ended March 31, 2003 and March 31, 2002 are
annualized.
Noninterest Income
Noninterest income for the quarter ended March 31, 2003 was $5.8 million
compared to $5.0 million for the first quarter of 2002. This increase was mainly
due to a $525,000 increase in credit/debit card and ATM income which reflected
higher card usage combined with the expansion of the ATM network. In addition,
gains on the sales of loans increased $385,000 during the first quarter of 2003
compared to the first quarter of 2002. The first quarter 2003 gains resulted
from the sales of $19.6 million in residential mortgages and were the result of
the high level of mortgage refinancing.
Noninterest Expense
Noninterest expenses for the quarter ended March 31, 2003 were $13.0
million or $944,000 above the $12.0 million for the same period of 2002. This
increase included $1.3 million of expenses incurred in connection with the sale
of WF, which included $663,000 of expenses related to special Associate
compensation and a $660,000 contribution to the WSFS charitable foundation to
benefit the communities WSFS serves. The increase in noninterest expense was
partially offset by cost savings from the Corporation's Technology,
Organizational and Process Simplification Plan (TOPS).
During the first quarter of 2003, the Corporation completed the previously
announced TOPS program, an initiative designed to simplify the organization,
better integrate technology solutions and re-engineer certain back office
processes. The net benefit (costs savings generated less expenses incurred) of
the program in the first quarter 2003 was $609,000 and was comprised of $876,000
in savings less $267,000 in costs incurred. Because the program was
substantially completed in the first quarter of 2003, future program costs are
expected to be nominal.
23
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." During the first quarter
of 2003, the Corporation recorded a provision for income taxes from continuing
operations of $2.2 million compared to $4.2 million for the same period in 2002.
The effective tax rates from continuing operations for the first quarter of 2003
and 2002 were 35% and 37%, respectively.
The effective tax rates reflect the recognition of certain tax benefits in
the financial statements including those benefits from tax-exempt interest
income and from a fifty-percent interest income exclusion on a loan to an
Employee Stock Ownership Plan. While the income from continuing operations has
decreased for the comparable periods, the tax benefits have remained constant,
thereby reducing the Corporation's effective tax rate.
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 the accounting treatment of intangible
assets, acquired individually or with a group of other assets (i.e. those not
acquired in a business combination), in financial statements upon their
acquisition. Statement 142 also addresses the accounting treatment of goodwill
and other intangible assets after they have been initially recognized in the
financial statements. Under this standard, goodwill can no longer be amortized
but instead be tested for impairment and its value adjusted accordingly.
Negative goodwill was 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.
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 their 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 was effective for fiscal years beginning
after June 15, 2002. The adoption of this statement on January 1, 2003 did not
have a material impact on earnings, financial condition or equity of the
Corporation.
In June 2002, the FASB issued Statement 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 applied to exit or disposal activities that are
initiated after December 31, 2002. The adoption of this Statement did not have a
material impact on the Corporation's earnings, financial condition or equity.
In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. This Interpretation requires a guarantor
to include disclosure of certain obligations, and if applicable, at the
inception of the guarantee, recognize a liability for the fair value of other
certain obligations undertaken in issuing a guarantee. The recognition
requirement is effective for guarantees issued or modified after December 31,
2002. The application of this Interpretation did not have an impact on the
Corporation's earnings, financial condition, or equity.
24
In December 2002, the FASB issued Statement No. 148, Accounting for
Stock-Based Compensation--Transition and Disclosure--an amendment of FASB
Statement No. 123. This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of Statement 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
This Statement is effective for fiscal years ending after December 15, 2002,
except for financial reports containing condensed financial statements for
interim periods for which disclosure is effective for periods beginning after
December 15, 2002. The adoption of this Statement did not have an impact on the
Corporation's earnings, financial condition, or equity.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities. This Interpretation clarifies the application of
Accounting Research Bulletin No. 51 and applies immediately to any variable
interest entities created after January 31, 2003 and to variable interest
entities for which ownership interest is obtained after that date. Application
of this Interpretation did not have an impact on the Corporation's earnings,
financial condition, or equity.
In April 2003, the FASB issued Statement No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities. This Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.
With some exceptions, this Statement is effective for contracts entered into or
modified after June 30, 2003. The Company does not expect the adoption of this
Statement to have an impact on its 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, the mid-Atlantic region and the country as
a whole, loan delinquency rates, operating risk, uncertainty of estimates in
general, and changes in federal and state regulations, 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 to Item 2, of this quarterly report
on Form 10-Q.
Item 4. Disclosure Controls and Procedures
----------------------------------
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this
Quarterly Report on Form 10-Q, the Registrant's principal
executive officer and principal financial officer have concluded
that the Registrant's disclosure controls and procedures (as
defined in Rules 13a-14(c) under the Securities Exchange Act of
1934 (the "Exchange Act")) are effective to ensure that
information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
Changes in internal controls. There were no significant changes
in the Registrant's internal controls or other factors that could
significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
25
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On March 25, 2003, a Demand for Arbitration (the "Demand") was filed
against Wilmington Savings Fund Society, FSB (the "Bank"), the
Company's wholly-owned subsidiary, in the Northeast Case Management
Center of the American Arbitration Association by American Homestead
Mortgage Corp. ("AHMC"). AHMC seeks an award of approximately $8.0
million under a 1994 agreement pursuant to which the Bank purchased
certain reverse mortgages from AHMC. AHMC claims it is entitled to a
portion of the net cash flow received by the Bank once the Bank
achieved a specified minimum return on its investment. The Company
believes that it achieved the specified minimum return on its
investment when it sold such loans as a part of the sale of a much
larger portfolio of reverse mortgage loans in November 2002. The
dispute relates to the price at which the AHMC portion of the
portfolio of reverse mortgage loans was sold. Without admitting or
denying any liability to AHMC, the Company believes that AHMC may be
entitled to less than $2.0 million under the terms of the 1994
agreement with AHMC, based on the actual price at which such loans
were sold, currently, and potentially more at a later date when
certain non-cash proceeds from the sale are received in cash. The
Company has accrued for its expected payments under its contract with
AHMC. The Company believes that the Demand is without merit and that
the ultimate disposition of the arbitration will not have a material
adverse effect on the financial condition and results of operations
of the Company taken as a whole. The Company intends to vigorously
defend against the Demand.
The Company is not engaged in any legal proceedings of a material
nature at March 31, 2003. From time to time, the Company is party to
legal proceedings in the ordinary course of business wherein it
enforces its security interest in loans.
Item 2. Changes in Securities and Uses of Proceeds
------------------------------------------
Not applicable
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Corporation's Annual Stockholder's Meeting (the Meeting) held
on April 24, 2003, all of the nominees for director proposed by the
Corporation were elected. The votes cast for each nominee were as
follows:
For Withheld
--- --------
Linda C. Drake................ 7,509,220 105,971
David E. Hollowell............ 7,510,623 104,568
Claiborne D. Smith............ 7,510,598 104,593
Eugene W. Weaver.............. 7,509,161 106,030
In addition, at the Meeting, the shareholders ratified the
appointment of KPMG, LLP as independent auditors for fiscal year
ending December 31, 2003. The votes cast were as follows:
For Against Abstain
--- ------- -------
7,528,698 80,027 6,366
Also, at the Meeting 2003, the shareholders approved amendments to the
1997 Stock Option Plan. The votes cast were as follows:
For Against Abstain
--- ------- -------
4,809,480 1,274,489 22,661
26
Item 5. Other Information
-----------------
Not applicable
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 99.1 - Certification pursuant to 18 U.S.C. Section 1350
(b) Reports on 8-K
(i) On January 3, 2003 the Registrant filed a Form 8-K pursuant to
items 5 and 7 announcing it had completed the previously
announced sale of its majority-owned subsidiary, Wilmington
Finance, Inc., an originator and seller of non-conforming loans.
(ii) On April 22, 2003 the Registrant file a Form 8-K pursuant to
items 5 and 7 announcing earnings for the first quarter of 2003.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WSFS FINANCIAL CORPORATION
Date: May 14, 2003 /s/ MARVIN N. SCHOENHALS
------------------------------------
Marvin N. Schoenhals
Chairman and President
Date: May 14, 2003 /s/ MARK A. TURNER
------------------------------------
Mark A. Turner
Chief Operating Officer and Chief
Chief Financial Officer
28
WSFS FINANCIAL CORPORATION
Wilmington, Delaware
CERTIFICATION
Pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002
I, Marvin N. Schoenhals, Chairman, President and Chief Executive Officer of
WSFS Financial Corporation (the "Company"), hereby certify that:
1. I have reviewed the Report on Form 10-Q for the quarter ended March 31,
2003, of the Company;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rule 13a-14(c)) for the Company and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this report (the "Evaluation Date"); and
(c) presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of Company's board of directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this report
whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 14, 2003 /s/ MARVIN N. SCHOENHALS
-----------------------------------
Marvin N. Schoenhals
Chairman and President
29
WSFS FINANCIAL CORPORATION
Wilmington, Delaware
CERTIFICATION
Pursuant to Section 302
of the
Sarbanes-Oxley Act of 2002
I, Mark A. Turner, Chief Operating Officer and Chief Financial Officer, of
WSFS Financial Corporation (the "Company"), hereby certify that:
1. I have reviewed the Report on Form 10-Q for the quarter ended March 31,
2003, of the Company;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the Financial Statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this report;
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rule 13a-14(c)) for the Company and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within the
those entities, particularly during the period in which this report is
being prepared;
(b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this report (the "Evaluation Date"); and
(c) presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The Company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the Company's auditors and the audit committee
of Company's board of directors:
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
(b) any fraud, whether or not material, that involves management or other
Associates who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officer and I have indicated in this report
whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the
date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 14, 2003 /s/ MARK A. TURNER
-----------------------------------
Mark A. Turner
Chief Operating Officer and
Chief Financial Officer
30