WSFS FINANCIAL CORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
(Mark One)

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004
-------------------------------------------------

OR

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from to
---------------------- -----------------------

Commission File Number 0-16668
-------

WSFS FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 22-2866913
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

838 Market Street, Wilmington, Delaware 19801
- ------------------------------------------ -----------------------------
(Address of principal executive offices) (Zip Code)

(302) 792-6000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---

Indicate 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 August 2, 2004:

Common Stock, par value $.01 per share 7,015,955
- -------------------------------------- --------------------
(Title of Class) (Shares Outstanding)

WSFS FINANCIAL CORPORATION

FORM 10-Q

INDEX

PART I. Financial Information

Page
----

Item 1. Financial Statements

Consolidated Statement of Operations for the Three and Six Months
Ended June 30, 2004 and 2003 (Unaudited)........................................... 3

Consolidated Statement of Condition as of June 30, 2004
(Unaudited) and December 31, 2003.................................................. 5

Consolidated Statement of Cash Flows for the Six Months Ended
June 30, 2004 and 2003 (Unaudited)................................................. 6

Notes to the Consolidated Financial Statements for the Three and Six
Months Ended June 30, 2004 and 2003 (Unaudited).................................... 8

Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations.......................................................... 17
-------------------------

Item 3. Quantitative and Qualitative Disclosures About Market Risk........................... 28
----------------------------------------------------------

Item 4. Controls and Procedures ........................................................... 28
------------------------

PART II. Other Information

Item 1. Legal Proceedings.................................................................... 28
-----------------

Item 2. Changes in Securities, Uses of Proceed and Issuer Purchases of Equity Securities..... 28
--------------------------------------------------------------------------------

Item 3. Defaults upon Senior Securities...................................................... 29
-------------------------------

Item 4. Submission of Matters to a Vote of Security Holders.................................. 29
---------------------------------------------------

Item 5. Other Information ................................................................... 29
-----------------

Item 6. Exhibits and Reports on Form 8-K..................................................... 29
--------------------------------

Signatures .................................................................................... 30

Exhibit 31 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 ........... 31

Exhibit 32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ........... 33

2

WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS

Three months ended Six months ended
June 30, June 30,
----------------- -----------------
2004 2003 2004 2003
------- ------- ------- -------
(Unaudited)
(In Thousands)

Interest income:
Interest and fees on loans .......................... $18,222 $17,915 $36,322 $35,777
Interest on mortgage-backed securities .............. 4,689 4,065 9,416 7,547
Interest and dividends on investment securities ..... 1,219 255 2,348 429
Other interest income ............................... 152 235 358 624
------- ------- ------- -------
24,282 22,470 48,444 44,377
------- ------- ------- -------
Interest expense:
Interest on deposits ................................ 1,832 2,112 3,625 4,591
Interest on Federal Home Loan Bank advances ......... 5,886 4,945 11,441 9,426
Interest on federal funds purchased and securities
sold under agreements to repurchase ............... 413 225 813 365
Interest on trust preferred borrowings .............. 503 493 999 989
Interest on other borrowings ........................ 40 92 78 188
------- ------- ------- -------
8,674 7,867 16,956 15,559
------- ------- ------- -------
Net interest income ...................................... 15,608 14,603 31,488 28,818
Provision for loan losses ................................ 687 725 1,374 1,500
------- ------- ------- -------
Net interest income after provision for loan losses ...... 14,921 13,878 30,114 27,318
------- ------- ------- -------

Noninterest income:
Loan servicing fee income ........................... 627 757 1,158 1,429
Deposit service charges ............................. 2,366 2,369 4,701 4,274
Credit/debit card and ATM income .................... 2,976 2,529 5,640 4,702
Securities gains .................................... 2 189 224 189
Gains on sales of loans ............................. 294 757 367 1,161
Bank owned life insurance income .................... 626 - 1,105 -
Investment advisory income .......................... 549 - 1,087 -
Other income ........................................ 780 699 1,496 1,355
------- ------- ------- -------
8,220 7,300 15,778 13,110
------- ------- ------- -------
Noninterest expenses:
Salaries, benefits and other compensation ........... 7,406 6,767 15,049 13,586
Equipment expense ................................... 925 923 1,790 1,856
Data processing and operations expenses ............. 837 690 1,599 1,367
Occupancy expense ................................... 1,122 984 2,271 1,972
Marketing expense ................................... 541 414 1,061 821
Professional fees ................................... 309 864 831 1,365
Other operating expense ............................. 2,049 1,717 3,826 4,362
------- ------- ------- -------
13,189 12,359 26,427 25,329
------- ------- ------- -------
Income from continuing operations before minority interest
and taxes ............................................. 9,952 8,819 19,465 15,099
Less minority interest ................................... 47 - 92 -
------- ------- ------- -------
Income from continuing operations before taxes ........... 9,905 8,819 19,373 15,099
Income tax provision ..................................... 3,638 3,183 6,924 5,382
------- ------- ------- -------
Income from continuing operations ........................ 6,267 5,636 12,449 9,717
Gain on sale of businesses held-for-sale, net of taxes ... - 208 - 41,389
------- ------- ------- -------
Net income ............................................... $ 6,267 $ 5,844 $12,449 $51,106
======= ======= ======= =======

3

(Continued on next page)

WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS (Continued)

Three months ended Six months ended
June 30, June 30,
------------------- ------------------
2004 2003 2004 2003
-------- -------- ------- --------
(Unaudited)

Earnings per share:
Basic:
Income from continuing operations ....................... $ 0.87 $ 0.73 $ 1.71 $ 1.21
Gain on sale of businesses held-for-sale, net of taxes... - 0.02 - 5.13
-------- -------- ------- --------
Net income .............................................. $ 0.87 $ 0.75 $ 1.71 $ 6.34
======== ======== ======= ========

Diluted:
Income from continuing operations ....................... $ 0.82 $ 0.69 $ 1.62 $ 1.14
Gain on sale of businesses held-for-sale, net of taxes... - 0.02 - 4.87
-------- -------- ------- --------

Net income .............................................. $ 0.82 $ 0.71 $ 1.62 $ 6.01
======== ======== ======== ========

The accompanying notes are an integral part of these Financial Statements.

4

WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CONDITION

June 30, December 31,
2004 2003
----------- -----------
(Unaudited)
(In Thousands)

Assets
Cash and due from banks ...................................................... $ 55,979 $ 46,709
Cash in non-owned ATMs ....................................................... 123,777 113,711
Federal funds sold ........................................................... 15,000 -
Interest-bearing deposits in other banks ..................................... 761 1,095
Investment securities held-to-maturity ....................................... 7,759 10,410
Investment securities available-for-sale ..................................... 114,305 106,078
Mortgage-backed securities held-to-maturity .................................. 14 1,814
Mortgage-backed securities available-for-sale ................................ 515,529 517,211
Mortgage-backed securities trading ........................................... 11,769 11,527
Loans held-for-sale .......................................................... 1,064 1,458
Loans, net of allowance for loan losses of $23,139 at June 30, 2004
and $22,386 at December 31, 2003 ........................................... 1,403,224 1,303,419
Bank owned life insurance .................................................... 51,105 -
Stock in Federal Home Loan Bank of Pittsburgh, at cost ....................... 46,958 43,676
Assets acquired through foreclosure .......................................... 175 301
Premises and equipment ....................................................... 14,527 13,345
Accrued interest receivable and other assets ................................. 34,363 26,849
Loans, operating leases and other assets of discontinued operations .......... 3,645 9,474
----------- -----------

Total assets ................................................................. $ 2,399,954 $ 2,207,077
=========== ===========

Liabilities and Stockholders' Equity

Liabilities:
Deposits:
Noninterest-bearing demand ............................................... $ 229,842 $ 215,819
Money market and interest-bearing demand ................................. 136,042 118,151
Savings .................................................................. 323,128 316,976
Time ..................................................................... 176,697 192,037
Jumbo certificates of deposit - retail ................................... 48,852 40,076
----------- -----------
Total retail deposits .................................................. 914,561 883,059
Jumbo certificates of deposit - non-retail ............................... 45,300 40,274
Brokered certificates of deposit ......................................... 74,974 -
----------- -----------
Total deposits ....................................................... 1,034,835 923,333

Federal funds purchased and securities sold under agreements to repurchase ... 156,640 148,381
Federal Home Loan Bank advances .............................................. 930,181 843,296
Trust preferred borrowings ................................................... 51,547 50,000
Other borrowed funds ......................................................... 33,417 39,381
Accrued expenses and other liabilities ....................................... 15,373 14,648
----------- -----------
Total liabilities ............................................................ 2,221,993 2,019,039
----------- -----------

Minority Interest ............................................................ 237 46

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
15,143,409 at June 30, 2004 and 15,080,162 at December 31, 2003 .......... 151 151
Capital in excess of par value ............................................... 66,379 64,738
Accumulated other comprehensive loss ......................................... (7,401) (1,748)
Retained earnings ............................................................ 280,450 268,797
Treasury stock at cost, 8,127,769 shares at June 30, 2004 and 7,758,869
shares at December 31, 2003 .............................................. (161,855) (143,946)
----------- -----------
Total stockholders' equity ................................................... 177,724 187,992
----------- -----------
Total liabilities, minority interest and stockholders' equity ................ $ 2,399,954 $ 2,207,077
=========== ===========

The accompanying notes are an integral part of these Financial Statements.

5

WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS

Six months ended June 30,
-------------------------
2004 2003
----------- -----------
(Unaudited)
(In Thousands)

Operating activities:
Net income ................................................................. $ 12,449 $ 51,106
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Provision for loan losses .............................................. 1,374 1,500
Depreciation, accretion and amortization ............................... 3,448 5,430
Increase in accrued interest receivable and other assets ............... (1,593) (12,153)
Origination of loans held-for-sale ..................................... (18,922) (32,665)
Proceeds from sales of loans held-for-sale ............................. 18,070 31,145
Gain on sale of loans held-for-sale .................................... (106) (752)
Gain on sale of loans .................................................. (261) (414)
Gain on sale of investments ............................................ (224) -
Minority interest in net income ........................................ 92 -
Increase (decrease) in accrued interest payable and other liabilities .. 725 (7,177)
Gain on businesses held-for-sale ....................................... - (65,073)
Gain on assets acquired through foreclosure ............................ (39) -
Increase in capitalized interest, net .................................. (2,053) (138)
---------- -----------
Net cash provided by (used for) operating activities ....................... 12,960 (29,191)
---------- -----------

Investing activities:
Net decrease in interest-bearing deposits in other banks ................... 334 6,796
Maturities of investment securities ........................................ 2,585 105
Sale of investment securities available-for-sale ........................... - 10,957
Purchase of investments available for sale ................................. (9,930) (2,031)
Sales of mortgage-backed securities available-for-sale ..................... 31,346 12,929
Repayments of mortgage-backed securities held-to-maturity .................. 1,804 16,972
Repayments of mortgage-backed securities available-for-sale ................ 99,481 140,309
Purchases of mortgage-backed securities available-for-sale ................. (138,097) (558,211)
Repayments of reverse mortgages ............................................ 1,238 1,099
Disbursements for reverse mortgages ........................................ (257) (461)
Purchase of Cypress Capital Management LLC ................................. (1,122) -
Sale of loans .............................................................. 12,250 15,867
Purchase of loans .......................................................... (7,449) (6,678)
Purchase of bank owned life insurance ...................................... (50,000) -
Sale of businesses held-for-sale ........................................... - 128,667
Net increase in loans ...................................................... (104,654) (132,181)
Net increase in stock of Federal Home Loan Bank of Pittsburgh .............. (3,282) (17,784)
Sales of assets acquired through foreclosure, net .......................... 406 356
Premises and equipment, net ................................................ (2,688) (682)
---------- -----------
Net cash used for investing activities ..................................... (168,035) (383,971)
---------- -----------

Financing activities:
Net increase in demand and savings deposits ................................ 32,102 47,019
Net increase (decrease) in time deposits ................................... 73,309 (38,325)
Receipts from FHLB borrowings .............................................. 2,942,600 1,607,503
Repayments of FHLB borrowings .............................................. (2,855,715) (1,267,594)
Receipts from reverse repurchase agreements ................................ 1,459,938 339,444
Repayments of reverse repurchase agreements ................................ (1,451,679) (365,369)
Net increase in federal funds purchased .................................... - 50,000
Dividends paid on common stock ............................................. (804) (825)
Issuance of common stock and exercise of employee stock options ............ 1,641 612
Purchase of treasury stock, net of reissuance .............................. (17,909) (36,609)
Minority interest .......................................................... 99 (12,845)
---------- -----------
Net cash provided by financing activities .................................. 183,582 323,011
---------- -----------

Increase (decrease) in cash and cash equivalents from continuing operations 28,507 (90,151)
Change in net assets from discontinued operations .......................... 5,829 23,830
Cash and cash equivalents at beginning of period ........................... 160,420 226,303
---------- -----------
Cash and cash equivalents at end of period ................................. $ 194,756 $ 159,982
========== ===========

(Continued on next page)

6

WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)

Six months ended June 30,
-------------------------
2004 2003
-------- --------
(Unaudited)
(In Thousands)

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest ..................................................... $ 15,410 $ 14,125
Cash paid for income taxes, net............................................. 5,053 47,622
Loans transferred to assets acquired through foreclosure ................... 240 350
Net change in other comprehensive income.................................... 5,653 (981)
Transfer of loans held-for-sale to loans.................................... 1,352 397
Deconsolidation of WSFS Capital Trust I .................................... 1,547 -

The accompanying notes are an integral part of these Financial Statements.

7

WSFS FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(UNAUDITED)

1. BASIS OF PRESENTATION

The consolidated Financial Statements include the accounts of the
parent company (WSFS Financial Corporation), Wilmington Savings Fund Society,
FSB (Bank or WSFS) and Montchanin Capital Management, Inc. (Montchanin). WSFS
Financial Corporation (Company or Corporation) also has one unconsolidated
affiliate, WSFS Capital Trust I (the Trust). WSFS was founded in 1832 and is one
of the oldest financial institutions in the country. 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 serves
customers primarily from its main office and 23 retail banking offices, located
in Delaware and southeastern Pennsylvania. Montchanin was formed in late 2003 to
provide asset management services in the Corporation's primary market area. The
Trust 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.

Fully-owned and consolidated subsidiaries of WSFS include WSFS Credit
Corporation (WCC), WSFS Investment Group, Inc. and WSFS Reit, Inc. As discussed
in Note 3 of the Financial Statements, the results of WCC, the Corporation's
wholly owned indirect auto financing and leasing subsidiary, are presented as
discontinued operations. WSFS Investment Group, Inc. was formed in 1989. This
subsidiary markets various third-party investment and insurance products, such
as single-premium annuities, whole life policies and securities primarily
through WSFS' retail banking system. WSFS Reit, Inc. is a real estate investment
trust formed in 2002 to hold qualifying real estate assets and may be used to
raise capital in the future.

In addition to the wholly owned subsidiaries, WSFS had consolidated one
non-wholly owned subsidiary, Wilmington Finance, Inc. (WF). WF, a majority owned
subsidiary engaged in sub-prime residential banking, was sold in January 2003.
This subsidiary is therefore classified as businesses held-for-sale in the
Financial Statements. See Note 4 of the Financial Statements for further
discussion of Businesses Held-for-Sale.

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 2003 Annual
Report.

Valuation of Stock Option Grants

At June 30, 2004, the Corporation had two stock-based employee
compensation plans. The Corporation accounts for these plans under the
recognition and measurement principles of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and Related
Interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under these 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 the Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, to stock-based employee compensation.

8

For the three months For the six months
ended June 30, ended June 30,
--------------------- ---------------------
2004 2003 2004 2003
--------- --------- ---------- ---------
(In Thousands, Except Per Share Data)

Income from continuing operations, as reported ............................ $ 6,267 $ 5,636 $ 12,449 $ 9,717
Less : Total stock-based employee compensation expense determined
under fair value based methods for all awards, net of related
tax effects ..................................................... 146 169 307 353
--------- --------- ---------- ---------
Pro forma income from continuing operations ............................ $ 6,121 $ 5,467 $ 12,142 $ 9,364

Earnings per share:
Basic:
- ------
Income from continuing operations, as reported ............................ $ 0.87 $ 0.73 $ 1.71 $ 1.21
Less : Total stock-based employee compensation expense determined
under fair value based methods for all awards, net of related tax
effects ......................................................... 0.02 0.03 0.04 0.05
--------- --------- ---------- ---------
Pro forma income from continuing operations ............................... $ 0.85 $ 0.70 $ 1.67 $ 1.16
========= ========= ========== =========
Diluted:
- --------
Income from continuing operations, as reported ............................ $ 0.82 $ 0.69 $ 1.62 1.14
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 0.04 0.04
--------- --------- ---------- ---------
Pro forma income from continuing operations ............................... $ 0.80 $ 0.67 $ 1.58 $ 1.10
========= ========= ========== =========

2. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share:

For the three months For the six months
ended June 30, ended June 30,
------------------ ---------------------
2004 2003 2004 2003
------ ------ ------- --------
(In Thousands, Except Per Share Data)

Numerator:
- ----------
Income from continuing operations................................. $6,267 $5,636 $12,449 $ 9,717
Gain on sale of businesses held-for-sale, net of taxes............ - 208 - 41,389
------ ------ ------- --------
Net income ....................................................... $6,267 $5,844 $12,449 $51,106
====== ====== ======= =======
Denominator:
- ------------
Denominator for basic earnings per share - weighted
average shares................ 7,185 7,756 7,273 8,061
Effect of dilutive employee stock options ........................ 420 453 431 444
------ ------ ------- --------
Denominator for diluted earnings per share - adjusted
weighted average shares and assumed exercise ................... 7,605 8,209 7,704 8,505
====== ====== ======= =======
Earnings per share:
- -------------------

Basic:
Income from continuing operations................................. $ 0.87 $ 0.73 $ 1.71 $ 1.21
Gain on sale of businesses held-for-sale, net of taxes............ - 0.02 - 5.13
------ ------ ------- -------
Net income ....................................................... $ 0.87 $ 0.75 $ 1.71 $ 6.34
====== ====== ======= =======
Diluted:
Income from continuing operations................................. $ 0.82 $ 0.69 $ 1.62 $ 1.14
Gain on sale of businesses held-for-sale, net of taxes............ - 0.02 - 4.87
------ ------ ------- -------

Net income ....................................................... $ 0.82 $ 0.71 $ 1.62 $ 6.01
====== ====== ======= =======

Outstanding common stock equivalents having no dilutive effect.... 3 - 2 -

9

Discontinued Operations of a Business Segment

WSFS Financial Corporation discontinued the operations of WCC in 2000.
WCC, which had 173 lease contracts and 379 loan contracts at June 30, 2004, 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, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, and
Related Interpretations, 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 June 30,
2004, there were approximately $2.2 million of contract residuals outstanding
for which management has estimated approximately $371,000 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
non-cash assets of discontinued operations at June 30, 2004 and December 31,
2003:

At June 30, At December 31,
2004 2003
-----------------------
(In Thousands)

Vehicles under operating leases, net of reserves ... $1,891 $6,542
Loans .............................................. 1,239 2,359
Other non-cash assets .............................. 624 573
Less:
Reserve for losses of discontinued operations... 109 -
------ ------
Loans, operating leases and other non-cash assets of
discontinued operations .......................... $3,645 $9,474
====== ======

The following table presents the net income from discontinued
operations for the three and six months ended June 30, 2004 and 2003:

For the three months For the six months
ended June 30, ended June 30,
-------------------- ----------------------
2004 2003 2004 2003
---- ---- ---- -----
(In Thousands)

Interest income ........................ $ 39 $ 116 $ 93 $ 260
Allocated interest expense (1) ......... 47 295 123 695
----- ----- ----- -----
Net interest expense ................... (8) (179) (30) (435)
Loan and lease servicing fee income .... 148 74 185 185
Rental income on operating leases, net . 122 (191) 316 (50)
Other income ........................... - 1 - 2
----- ----- ----- -----
Net revenues ......................... 262 (295) 471 (298)
Noninterest expenses ................. 97 185 208 365
----- ----- ----- -----
Income (loss) before taxes ............. 165 (480) 263 (663)
(Credit) charge to reserve for losses on
discontinued operations ............. (165) 480 (263) 663
Income tax provision ................... - - - -
----- ----- ----- -----
Income from discontinued operations .... $ - $ - $ - $ -
===== ===== ===== =====

(1) Allocated interest expense for the six months ended June 30, 2004 and 2003
was based on a direct matched-maturity funding of the non-cash assets of
discontinued operations. The average borrowing rates for the three and six
months ended June 30, 2004 were 3.79% and 3.85% compared to 3.44% and 3.39%
for the respective periods in 2003.

10

4. BUSINESSES HELD FOR SALE

In November 2002, the Corporation completed the sale of CustomerOne
Financial Network, Inc. (C1FN) and related interests in its Everbank Division.
In connection with that transaction, during the first half of 2003 WSFS
recognized an after tax-gain of $117,000 or $0.02 per diluted share.

In January 2003, WSFS sold its majority-owned subsidiary, Wilmington
Finance, Inc. (WF) and recognized an after tax-gain on the sale of $41.3 million
or $4.85 per diluted share during the first six months of 2003. The sale
included $148.2 million in assets, of which $117.6 were residential mortgage
loans held-for-sale.

5. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING

The Corporation has an interest-rate cap with a notional amount of $50
million, which limits 3-month LIBOR to 6% for the ten years ending December 1,
2008. The cap is being used to hedge the cash flows on $50 million in trust
preferred floating rate debt. The cap was recorded at the date of purchase in
other assets, at a cost of $2.4 million. On July 1, 2002, the inception date of
the redesignated hedging relationship, using guidance from the Financial
Accounting Standards Board (FASB) for implementation of Statement 133,
Accounting for Derivative and Hedging Activities, 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. The fair value of the cap is estimated using a standard option
model. The fair value of the interest rate cap at June 30, 2004 was $892,000.

While not meeting the definition of a derivative under SFAS 133,
related to its sale of reverse mortgages, in November 2002, the Corporation also
received as consideration 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'
option 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 June 30,
2004. The option will be evaluated quarterly for any changes in the estimated
valuation.

The following depicts the change in fair market value of the Company's
derivatives:

2004 2003
----------------------------------- ----------------------------------
At At At At
January 1, Change June 30, January 1, Change June 30,
---------- ------ -------- ---------- ------ --------
(In Thousands)

Interest Rate Cap.....$ 1,072(1) $ (180) $ 892(1) $ 1,012(1) $ (126) $ 886(1)

(1) Included in other comprehensive income, net of taxes.

11

6. COMPREHENSIVE INCOME

The following schedule reconciles net income to total comprehensive
income as required by SFAS No. 130, Reporting Comprehensive Income:

For the three months For the six months
ended June 30, ended June 30,
-------------- --------------
2004 2003 2004 2003
---- ---- ---- ----
(In Thousands)

Net income .......................................... $ 6,267 $ 5,844 $ 12,449 $ 51,106

Other Comprehensive Income:

Net unrealized holding (losses) gains on securities
available-for-sale arising during the period,
net of taxes..................................... (10,072) 673 (5,423) (779)

Net unrealized holding gains (losses) arising
during the period on derivatives used for
cash flow hedge, net of taxes................... 189 (58) (86) (85)

Reclassification adjustment for gains included
in net income, net of taxes...................... (1) (117) (144) (117)
--------- $------ -------- --------

Total comprehensive (loss) income.................... $ (3,617) $ 6,342 $ 6,796 $ 50,125
========= ======= ======== ========

7. TAXES ON INCOME

The Corporation accounts for income taxes in accordance with SFAS No.
109, Accounting for Income Taxes, 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.

8. SEGMENT INFORMATION

Under the definition of SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, the Corporation has two operating segments
at June 30, 2004: WSFS and CashConnect, the ATM division of WSFS.

The WSFS segment provides financial products through its retail banking
offices to commercial and retail customers. The CashConnect segment provides
turnkey ATM services through strategic partnerships with several of the largest
networks, manufacturers, and service providers in the ATM industry. The balance
sheet category "Cash in non-owned ATMs" includes cash in which fee income is
earned through bailment arrangements with customers of CashConnect. Bailment
arrangements are typically renewed annually.

Reportable segments are business units that are managed separately and
offer different services to distinct customer bases. The Corporation evaluates
performance based on pre-tax ordinary income relative to resources used, and
allocates resources based on these results. Segment information for the six
months ended June 30, 2004 and 2003 follows:

12

For the Three Months Ended June 30,
---------------------------------------------------------------------------
2004 2003
------------------------------------ -------------------------------------
(In Thousands)

Bank CashConnect Total Bank CashConnect Total
---- ----------- ----- ---- ----------- -----

External customer revenues:
Interest income $ 24,282 $ - $ 24,282 $ 22,470 $ - $ 22,470
Non-interest income 5,792 2,428 8,220 5,372 1,928 7,300
---------- ---------- ---------- ---------- ---------- ----------
Total external customer revenues 30,074 2,428 32,502 27,842 1,928 29,770
---------- ---------- ---------- ---------- ---------- ----------

Intersegment revenues:
Interest income 321 - 321 288 - 288
Non-interest income 166 189 355 169 193 362
---------- ---------- ---------- ---------- ---------- ----------
Total Intersegment revenues 487 189 676 457 193 650
---------- ---------- ---------- ---------- ---------- ----------

Total revenue 30,561 2,617 33,178 28,299 2,121 30,420

External customer expenses:
Interest expense 8,674 - 8,674 7,867 - 7,867
Non-interest expenses 12,181 948 13,129 11,403 864 12,267
Other depreciation and amortization 670 77 747 737 80 817
---------- ---------- ---------- ---------- ---------- ----------
Total external customer expenses 21,525 1,025 22,550 20,007 944 20,951
---------- ---------- ---------- ---------- ---------- ----------

Intersegment expenses:
Interest expense - 321 321 - 288 288
Non-interest expenses 189 166 355 193 169 362
---------- ---------- ---------- ---------- ---------- ----------
Total Intersegment expenses 189 487 676 193 457 650
---------- ---------- ---------- ---------- ---------- ----------

Total expenses 21,714 1,512 23,226 20,200 1,401 21,601
---------- ---------- ---------- ---------- ---------- ----------

Income before taxes and minority interest $ 8,847 $ 1,105 9,952 $ 8,099 $ 720 8,819

Provision for income taxes 3,638 3,183
Minority Interest 47 -
Gain on sale of business held-for-sale - 208
---------- ----------
Consolidated net income $ 6,267 $ 5,844
========== ==========

Segment assets $2,271,157 $ 128,797 $2,399,954 $1,919,398 $ 93,779 $2,013,177

Capital expenditures $ 2,170 $ 2 $ 2,172 $ 265 $ 18 $ 283

13

For the Six Months Ended June 30,
--------------------------------------------------------------------------------
2004 2003
-------------------------------------- ----------------------------------------
(In Thousands)

Bank CashConnect Total Bank CashConnect Total
---- ----------- ----- ---- ----------- -----

External customer revenues:
Interest income $ 48,444 $ - $ 48,444 $ 44,377 $ - $ 44,377
Non-interest income 11,159 4,619 15,778 9,460 3,650 13,110
---------- ---------- ---------- ---------- ---------- ----------
Total external customer revenues 59,603 4,619 64,222 53,837 3,650 57,487
---------- ---------- ---------- ---------- ---------- ----------

Intersegment revenues:
Interest income 612 - 612 570 - 570
Non-interest income 338 366 704 334 375 709
---------- ---------- ---------- ---------- ---------- ----------
Total Intersegment revenues 950 366 1,316 904 375 1,279
---------- ---------- ---------- ---------- ---------- ----------

Total revenue 60,553 4,985 65,538 54,741 4,025 58,766

External customer expenses:
Interest expense 16,956 - 16,956 15,559 - 15,559
Non-interest expenses 24,738 1,564 26,302 23,642 1,521 25,163
Other depreciation and amortization 1,345 154 1,499 1,503 163 1,666
---------- ---------- ---------- ---------- ---------- ----------
Total external customer expenses 43,039 1,718 44,757 40,704 1,684 42,388
---------- ---------- ---------- ---------- ---------- ----------

Intersegment expenses:
Interest expense - 612 612 - 570 570
Non-interest expenses 366 338 704 375 334 709
---------- ---------- ---------- ---------- ---------- ----------
Total Intersegment expenses 366 950 1,316 375 904 1,279
---------- ---------- ---------- ---------- ---------- ----------

Total expenses 43,405 2,668 46,073 41,079 2,588 43,667
---------- ---------- ---------- ---------- ---------- ----------

Income before taxes and minority interest $ 17,148 $ 2,317 19,465 $ 13,662 $ 1,437 $ 15,099

Provision for income taxes 6,924 5,382
Minority Interest 92 -
Gain on sale of business held-for-sale - 41,389
---------- ----------
Consolidated net income $ 12,449 $ 51,106
========== ==========

Segment assets $2,271,157 $ 128,797 $2,399,954 $1,919,398 $ 93,779 $2,013,177

Capital expenditures $ 2,557 $ 149 $ 2,706 $ 627 $ 43 $ 670

14

9. INDEMNIFICATIONS

Secondary Market Loan Sales. In the normal course of business, WSFS and
its subsidiaries sell loans in the secondary market. As is customary in such
sales, WSFS provides indemnifications to the buyers under certain circumstances.
These indemnifications may include the repurchase of loans by WSFS. In most
cases repurchases and losses are rare, and no provision is made for losses at
the time of sale.

Sale of C1FN/Everbank Segment. On November 5, 2002, the C1FN/Everbank
segment of WSFS was sold by WSFS and other shareholders of C1FN. In connection
with the sale, WSFS provided an 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 between WSFS and C1FN over the
life of those arrangements. 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 management of WSFS believes the
likelihood of any payments under this indemnification is very remote. As a
result, no provision for loss has been made in WSFS' financial statements at
June 30, 2004.

Sale of Wilmington Finance, Inc. On January 2, 2003, WSFS completed the
sale of its majority-owned subsidiary, Wilmington Finance, Inc. (WF). 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.

Remaining indemnifications provided by the sellers, fall into three
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; and (3) 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). The remaining
third-party claims indemnification includes a dollar limit of $32 million from
months 19 through 30 from the sale date. Buyer must exhaust any related reserves
provided in the closing balance sheet and incur $2 million of damages before an
initial dollar claim may be made against the sellers for any third-party claims
indemnification. 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 was 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.

WSFS is not aware of any claims to date, or any potential future claims
made under the WF indemnification provisions that could result in payment. As a
result, no provision for loss has been made in WSFS' financial statements at
June 30, 2004.

There can be no assurances that payments, if any, under all
indemnifications provided by the Corporation will not be material or exceed any
reserves that the Company may have established for such contingencies.

10. ASSOCIATE (EMPLOYEE) BENEFIT PLANS

Postretirement Benefits

The Corporation shares certain costs of providing health and life
insurance benefits to retired Associates (and their eligible dependents).
Substantially all Associates may become eligible for these benefits if they
reach normal retirement age while working for the Corporation.

The Corporation accounts for its obligations under the provisions of
SFAS No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions. SFAS 106 requires that the costs of these benefits be recognized over
an Associate's active working career. Disclosures are in accordance with SFAS
No. 132 (Revised), Employer's Disclosure About Pensions and Other Postretirement
Benefits, that standardized the applicable disclosure requirements.

On December 8, 2003, President Bush signed into law the Medicare
Prescription Drug, Improvement and Modernization Act of 2003 (the "Act"). The
Act expanded Medicare to include, for the first time, coverage for prescription
drugs. The Corporation sponsors a retiree medical program and expects that this
legislation may eventually reduce its costs for this program.

15

At this point, the Corporation's investigation into its response to the
legislation is preliminary, as management awaits guidance from various
governmental and regulatory agencies concerning the requirements that must be
met to obtain these cost reductions as well as the manner in which such savings
should be measured. Based on this preliminary analysis, it appears that the
Corporation's retiree medical plan will need to be changed in order to qualify
for beneficial treatment under the Act.

Because of the uncertainties related to the Corporation's response to
this legislation and the appropriate accounting methodology for this event, the
Corporation has elected to defer financial recognition of this legislation until
the FASB issues final accounting guidance. When issued, that guidance could
require the Corporation to change previously reported information. This deferral
election is permitted under FASB Staff Position FAS 106-1.

The following disclosures are in accordance with SFAS 132 (Revised) and
were measured at January 1, 2004:

Components of net periodic benefit cost:

Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2004 2003 2004 2003
---- ---- ---- ----

Service cost ..................................... $ 24 $ 19 $ 48 $ 38
Interest cost..................................... 31 30 62 60
Amortization of transition obligation ............ 15 15 30 30
Net loss recognition.............................. 5 3 10 6
-------- ------- ------ -------
Net periodic benefit cost ....... $ 75 $ 67 $ 150 $ 134
======== ======= ====== =======

16

ITEM 2. WSFS FINANCIAL CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------ FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

WSFS Financial Corporation (Company or Corporation) is a thrift holding
company headquartered in Wilmington, Delaware. Substantially all of the
Corporation's assets are held by its subsidiary, Wilmington Savings Fund
Society, FSB (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 172 years. WSFS is the largest thrift
institution headquartered in Delaware and the fourth largest financial
institution 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. The Federal Deposit Insurance Corporation (FDIC) insures deposits to
their legal maximum. At June 30, 2004 WSFS conducted operations from, among
other locations, its main office, two operations centers and 23 retail banking
offices located in Delaware and southeastern Pennsylvania.

The Corporation has two consolidated subsidiaries, WSFS and Montchanin
Capital Management, Inc. The Corporation also has one unconsolidated affiliate,
WSFS Capital Trust I. 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 to raise capital
in the future.

WCC, which discontinued operations in 2000, had 173 lease contracts and
379 loan contracts at June 30, 2004. WCC 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 3 to the Financial
Statements.

In addition to the wholly owned subsidiaries, WSFS had consolidated a
non-wholly owned subsidiary, Wilmington Finance, Inc. (WF). WF, a majority owned
subsidiary, engaged in sub-prime residential mortgage banking and was sold in
January 2003. This subsidiary is therefore classified as businesses
held-for-sale in the Financial Statements. For a further discussion, see Note 4
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 U.S. generally accepted accounting principles. 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, investment in
reverse mortgages and reverse mortgage bonds, the reserve for discontinued
operations, contingencies (including indemnifications), and deferred 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.

17

Investment in Reverse Mortgages and Reverse Mortgage Bonds

The Corporation accounts for its investment in reverse mortgages in
accordance with the instructions provided by the staff of the Securities and
Exchange Commission entitled "Accounting for Pools of Uninsured Residential
Reverse Mortgage Contracts" which requires grouping the individual reverse
mortgages into "pools" and recognizing income based on the estimated effective
yield of the pool. In computing the effective yield, the Corporation must
project the cash inflows and outflows of the pool including actuarial
projections of the life expectancy of the individual contract holder and changes
in the collateral values of the residence. At each reporting date, a new
economic forecast is made of the cash inflows and outflows of each pool of
revere mortgages; the effective yield of each pool is recomputed, and income is
adjusted retroactively and prospectively to reflect the revised rate of return.
Accordingly, because of this quasi-market-value based accounting, the recorded
value of reverse mortgage assets include significant risk associated with
estimations and income recognition can vary significantly from reporting period
to reporting period.

The Corporation owns $11.8 million of SASCO RM-1 2002 securities,
including accrued interest, classified as "trading." These floating rate notes
represent the BBB traunche of the reverse mortgage securitization underwritten
by Lehman Brothers and carry a coupon rate of one-month LIBOR plus 300 basis
points. At the time of the acquisition of these securities, it was the
Corporation's intent to sell these securities in the near term. Therefore, based
on rules promulgated under Statement of Financial Accounting Standards (SFAS)
115, Accounting for Certain Investments in Debt and Equity Securities, the
securities were classified as "trading." An active market for these securities
has not developed since the issuance, but it continues to be the intent of the
Corporation to sell these securities if and when an active market develops.
Since there is no active market for these securities, the Corporation has used
the guidance under SFAS 115 to provide a reasonable estimate of fair value. The
Corporation utilized matrix pricing and a fundamental analysis of the actual
cash flows of the underlying reverse mortgages to estimate a reasonable fair
value as of June 30, 2004. The Corporation also obtained a fair value estimate
from an independent securities dealer.

Reserve for Discontinued Operations

The Corporation discontinued the operations of WCC in 2000. In
accordance with Accounting Principles Board (APB) 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, and
Related Interpretations, 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.

Contingencies (Including Indemnifications)

In the ordinary course of business, the Corporation and its
subsidiaries are subject to legal actions which involve claims for monetary
relief. Based upon information presently available to the Corporation and its
counsel, it is the Corporation's opinion that any legal and financial
responsibility arising from such claims will not have a material adverse effect
on the Corporation's results of operations.

The Bank, as successor to originators of reverse mortgages, is from
time to time involved in arbitration or litigation with the various parties
including borrowers or with the heirs of borrowers. Because reverse mortgages
are a relatively new and uncommon product, there can be no assurances regarding
how the courts or arbitrators may apply existing legal principles to the
interpretation and enforcement of the terms and conditions of the Bank's reverse
mortgage obligations.

Deferred Taxes

The Corporation accounts for income taxes in accordance with SFAS No.
109, Accounting for Income Taxes, 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 $192.9 million during the first six months of 2004 to
$2.4 billion at June 30, 2004. During the first six months of 2004 loans grew
$99.8 million to $1.4 billion reflecting the continued strong growth in
commercial and commercial real estate loans, which amounted to $92.5 million.
Consumer loans grew by $21.6 million during the same period. These increases
were partially

18

offset by a decrease of $13.5 million in residential real estate loans. During
the first quarter of 2004, the company purchased $50.0 million in Bank-Owned
Life Insurance (BOLI). This purchase enabled the Company to insure the lives of
certain senior managers. In addition to providing economic protection in the
event of the loss of key managers, the BOLI investment provides for the
possibility of better long-term investment yields, enhanced by tax-free build up
of value and tax free returns upon ultimate distribution of proceeds, both
provided for in the Internal Revenue Code. The initial premium of $50.0 million
was funded through the liquidation of mortgage-backed securities (MBS). MBS,
inclusive of the $50.0 million liquidation, only decreased by $3.2 million
during the first six months of 2004. Also, federal funds sold and investments
increased by $20.2 million. Finally, cash in non-owned ATMs increased $10.1
million due to increased volume in the CashConnect segment. Loans, operating
leases and other assets of discontinued operations decreased $5.8 million, due
to a continued run-off in the WCC loan and lease portfolios.

Total liabilities increased $203.0 million between December 31, 2003
and June 30, 2004, to $2.2 billion. This increase was due to a need to fund
asset growth, and was led by a $111.5 million increase in deposits. This
included a $75.0 million increase in brokered certificates of deposit, a $31.5
million increase in retail deposits and a $5.0 million increase in non-retail
deposits. In addition, there was a $86.9 million increase in Federal Home Loan
Bank (FHLB) advances, primarily used to fund loan growth. Finally, the
Corporation deconsolidated its trust preferred borrowings in the first quarter
of 2004 as a result of the implementation of SFAS Interpretation No. 46(R),
Consolidation of Variable Interest Entities, which resulted in an increase to
trust preferred borrowings of $1.5 million.

Capital Resources

Stockholders' equity decreased $10.3 million between December 31, 2003
and June 30, 2004. This decrease was mainly due to the purchase of 373,900
shares of treasury stock for $18.0 million ($48.15 per share average). At June
30, 2004, the Corporation held 8,127,769 shares of its common stock in its
treasury at a cost of $161.9 million. In addition, other comprehensive income
decreased $5.7 million during the first six months of 2004 due in part, to a
decline in the fair value of mortgage-backed securities available-for-sale.
Also, the Corporation declared cash dividends' totaling $802,000 during the six
months ended June 30, 2004. These decreases were partially offset by net income
of $12.4 million and an increase of $1.6 million from the exercise of stock
options and recognition of the related tax benefit.

Below is a table comparing the Bank's consolidated capital position to
the minimum regulatory requirements as of June 30, 2004 (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) ........ $241,355 15.80% $122,189 8.00% $152,736 10.00%
Core Capital (to Adjusted
Total Assets)..................... 228,127 9.49 96,184 4.00 120,230 5.00
Tangible Capital (to Tangible
Assets) .......................... 228,127 9.49 36,069 1.50 N/A N/A
Tier 1 Capital (to Risk-Weighted
Assets)........................... 228,127 14.94 61,094 4.00 91,641 6.00

Under Office of Thrift Supervision (OTS) capital regulations, savings
institutions such as the Bank must maintain "tangible" capital equal to 1.5% of
adjusted total assets, "core" capital equal to 4.0% of adjusted total assets,
"Tier 1" capital equal to 4.0% of risk weighted assets and "total" or
"risk-based" capital (a combination of core and "supplementary" capital) equal
to 8.0% of risk-weighted assets. Failure to meet minimum capital requirements
can initiate certain mandatory actions and possibly additional discretionary
actions by regulators that, if undertaken, could have a direct material effect
on the Bank's financial statements. At June 30, 2004 the Bank was in compliance
with regulatory capital requirements and is considered 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 7.8% at June 30, 2004, compared to 6.1%
at December 31, 2003. 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

19

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. Past due loans are loans
contractually past due 90 days or more as to principal or interest payments but
which remain on accrual status because they are considered well secured and in
the process of collection.

June 30, December 31,
2004 2003
------ ------
(In Thousands)

Nonaccruing loans:
Commercial .................................... $1,299 $1,549
Consumer ...................................... 292 240
Commercial mortgage ........................... 994 941
Residential mortgage .......................... 2,587 2,513
Construction .................................. - -
------ ------

Total nonaccruing loans ............................ 5,172 5,243
Assets acquired through foreclosure ................ 175 301
------ ------

Total nonperforming assets ......................... $5,347 $5,544
====== ======

Past due loans:
Residential mortgages ......................... $ 273 $ 915
Commercial and commercial mortgages ........... - 129
Consumer ...................................... 28 148
------ ------

Total past due loans ............................... $ 301 $1,192
====== ======

Ratios:
Nonaccruing loans to total loans (1) .......... 0.36% 0.40%
Allowance for loan losses to gross loans (1)... 1.62% 1.69%
Nonperforming assets to total assets .......... 0.22% 0.25%
Loan loss allowance to nonaccruing loans (2)... 425% 422%
Loan and foreclosed asset allowance to total...
nonperforming assets (2) .................... 411% 399%

(1) Total loans exclude loans held for sale.
(2) The applicable allowance represents general valuation allowances only.

20

Nonperforming assets decreased $197,000 between December 31, 2003 and
June 30, 2004. The decrease resulted primarily from a $250,000 decrease in
nonaccruing commercial loans and a $126,000 decrease in assets acquired through
foreclosure, partially offset by increases in consumer, commercial mortgage, and
residential mortgages. An analysis of the change in the balance of nonperforming
assets is presented below:

For the Six
Months Ended For the Year Ended
June 30, 2004 December 31, 2003
------------- ------------------
(In Thousands)

Beginning balance................................ $ 5,544 $ 7,433
Additions .................................. 3,243 7,299
Collections................................. (2,486) (6,992)
Transfers to accrual/restructured status.... (600) (945)
Charge-offs / write-downs, net.............. (354) (1,251)
---------- ---------

Ending balance................................... $ 5,347 $ 5,544
========== =========

The timely identification of problem loans is a key element in the
Corporation's strategy to manage its loan portfolios. Timely identification
enables the Corporation to take appropriate action and, accordingly, minimize
losses. An asset review system established to monitor the asset quality of the
Corporation's loans and investments in real estate portfolios facilitates the
identification of problem assets. In general, this system utilizes guidelines
established by federal regulation; however, there can be no assurance that the
levels or the categories of problem loans and assets established by the Bank are
the same as those which would result from a regulatory examination.

INTEREST SENSITIVITY

The matching of maturities or repricing periods of interest
rate-sensitive assets and liabilities to ensure a favorable interest rate spread
and mitigate exposure to fluctuations in interest rates is the Corporation's
primary tool for achieving its asset/liability management strategies. Management
regularly reviews the interest-rate sensitivity of the Corporation and adjusts
the sensitivity within acceptable tolerance ranges established by management. At
June 30, 2004, interest-bearing liabilities exceeded interest-earning assets
that mature within one year (interest-sensitive gap) by $118.1 million. The
Corporation's interest-sensitive assets as a percentage of interest-sensitive
liabilities within the one-year window increased to 89% at June 30, 2004
compared to 83% at December 31, 2003. Likewise, the one-year interest-sensitive
gap as a percentage of total assets changed to -4.92% at June 30, 2004 from
- -7.95% at December 31, 2003. The change in sensitivity since December 31, 2003
is the result of the current interest rate environment and the Corporation's
continuing effort to effectively manage interest rate risk. Interest
rate-sensitive assets of the Corporation excluded cash flows from discontinued
operations as well as the interest rate-sensitive funding for these assets.

Market risk is the risk of loss from adverse changes in the market
prices and rates. The Company's market risk arises primarily from interest rate
risk inherent in its lending, investing, and funding activities. To that end,
management actively monitors and manages its interest rate risk exposure. One
measure, required to be performed by OTS-regulated institutions, is the test
specified by OTS Thrift Bulletin No. 13a "Management of Interest Rate Risk,
Investment Securities and Derivative Activities." This test measures the impact
on the net portfolio value ratio of an immediate change in interest rates in 100
basis point increments. The net portfolio value ratio is defined as the net
present value of the estimated cash flows from assets and liabilities as a
percentage of net present value of cash flows from total assets (or the net
present value of equity). The table below is the estimated impact of immediate
changes in interest rates on the Company's net interest margin and net portfolio
value ratio at the specified levels at June 30, 2004 and 2003, calculated in
compliance with Thrift Bulletin No. 13a:

21

At June 30,
-------------------------------------------------------------------
2004 2003
--------------------------------- -------------------------------
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% 7.98% -5% 10.03%
+200 -3% 8.26% -3% 10.25%
+100 -1% 8.42% -1% 10.43%
0 0% 8.50% 0% 10.50%
-100 -2% 8.39% -2% 10.10%
-200 (3) -11% 8.29% -7% 10.09%
-300 (3) -20% 8.44% -18% 11.03%

(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 June 30, 2004 and 2003 given the historically low
absolute level of interest rates at those times.

COMPARISON FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003

Results of Operations

The Corporation recorded net income of $6.3 million or $0.82 per
diluted share for the second quarter of 2004. This compares to $5.8 million or
$0.71 per diluted share for the same quarter last year. Income from continuing
operations was $6.3 million, or $0.82 per diluted share for the second quarter
of 2004. This compares to $5.6 million or $0.69 per diluted share for the same
quarter last year.

Net income for the six months ended June 30, 2004 was $12.4 million or
$1.62 per diluted share. This compares to $51.1 million or $6.01 per diluted
share for the comparable period last year. The results for the six months ended
June 30, 2003 include a $41.3 million or $4.85 per diluted share gain on the
sale of the Corporation's sub-prime mortgage banking subsidiary, WF and a
$117,000 or $0.02 per diluted share gain on the sale of the Corporation's
subsidiary engaged in Internet and branchless banking, CustomerOne Financial
Network, Inc and related interests in its Everbank Division. Income from
continuing operations was $12.4 million or $1.62 per diluted share for the six
months ended June 30, 2004. Excluding gains on the sale of businesses, income
from continuing operations for the six months ended June 30, 2003 was $9.7
million or $1.14 per diluted share.

22

Net Interest Income

The following tables provide information concerning the balances,
yields and rates on interest-earning assets and interest-bearing liabilities
during the periods indicated.

Three Months Ended June 30,
-----------------------------------------------------------------------------
2004 2003
---------------------------------- ---------------------------------
Average Yield/ Average Yield/
Balance Interest Rate (1) Balance Interest Rate (1)
------- -------- -------- ------- -------- --------
(Dollars in Thousands)

Assets:
Interest-earning assets:
Loans (2) (3):
Commercial real estate loans..... $ 406,101 $ 5,424 5.34% $ 308,689 $ 4,524 5.86%
Residential real estate loans.... 446,039 5,864 5.26 454,115 6,806 5.99
Commercial loans ................ 337,152 3,740 4.72 242,476 3,115 5.54
Consumer loans................... 201,013 3,163 6.33 185,462 3,394 7.34
---------- --------- ---------- --------
Total loans.................... 1,390,305 18,191 5.31 1,190,742 17,839 6.09
Mortgage-backed securities (4)........ 511,379 4,689 3.67 531,584 4,065 3.06
Loans held-for-sale (3)............... 2,423 31 5.12 3,683 76 8.25
Investment securities (4)............. 121,179 1,219 4.02 15,165 255 6.73
Other interest-earning assets ........ 45,601 152 1.33 41,672 235 2.26
---------- --------- ---------- --------
Total interest-earning assets.... 2,070,887 24,282 4.74 1,782,846 22,470 5.10
--------- --------
Allowance for loan losses............. (22,899) (22,096)
Cash and due from banks............... 49,512 46,941
Cash in non-owned ATMs................ 112,559 84,836
Loans, operating leases and other assets of
discontinued operations............. 5,663 29,529
Bank owned life insurance............. 50,691 -
Other noninterest-earning assets...... 43,027 29,050
---------- ----------
Total assets..................... $2,309,440 $1,951,106
========== ==========

Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand................. $ 119,732 $ 84 0.28% $ 104,959 $ 83 0.32%
Savings.......................... 322,682 326 0.41 311,521 448 0.58
Retail time deposits ............ 222,589 1,024 1.85 255,919 1,469 2.30
Jumbo certificates of deposits .. 45,942 168 1.47 28,688 112 1.57
Brokered certificates of deposit. 59,841 230 1.55 - - -
---------- --------- ---------- --------
Total interest-bearing
deposits..................... 770,786 1,832 0.96 701,087 2,112 1.21
FHLB of Pittsburgh advances........... 869,267 5,933 2.70 677,074 5,240 3.06
Trust preferred borrowings............ 51,547 503 3.86 50,000 493 3.90
Other borrowed funds.................. 193,678 453 0.94 109,107 317 1.16
Cost of funding discontinued
operations.......................... (47) (295)
---------- --------- ---------- --------
Total interest-bearing
liabilities.................... 1,885,278 8,674 1.84 1,537,268 7,867 2.05
--------- --------
Noninterest-bearing demand deposits... 221,141 185,123
Other noninterest-bearing liabilities. 13,767 29,713
Minority interest .................... 213 50
Stockholders' equity.................. 189,041 198,952
---------- ----------
Total liabilities and stockholders'
equity.............................. $2,309,440 $1,951,106
========== ==========
Excess of interest-earning assets
over interest-bearing
liabilities...................... $ 185,609 $ 245,578
========== ==========
Net interest and dividend income...... $ 15,608 $ 14,603
========= =========

Interest rate spread.................. 2.90% 3.05%
===== =====

Net interest margin................... 3.07% 3.34%
===== =====

(1) Weighted average yields have been computed on a tax-equivalent basis.
(2) Nonperforming loans are included in average balance computations.
(3) Balances are reflected net of unearned income.
(4) Includes securities available-for-sale.

23

Six Months Ended June 30,
-----------------------------------------------------------------------------
2004 2003
Average Yield/ Average Yield/
Balance Interest Rate (1) Balance Interest Rate (1)
------- -------- -------- ------- -------- --------
(Dollars in Thousands)

Assets:
Interest-earning assets:
Loans (2) (3):
Commercial real estate loans ...... $ 396,506 $10,636 5.31% $ 299,569 $ 8,874 5.89%
Residential real estate loans...... 449,462 11,988 5.37 445,124 13,774 6.19
Commercial loans .................. 320,689 7,245 4.82 228,199 6,098 5.80
Consumer loans..................... 197,591 6,389 6.50 185,265 6,873 7.48
---------- --------- ---------- -------
Total loans...................... 1,364,248 36,258 5.40 1,158,157 35,619 6.25
Mortgage-backed securities (4).......... 504,039 9,416 3.74 435,347 7,547 3.47
Loans held-for-sale (3)................. 1,799 64 7.12 4,566 158 6.92
Investment securities (4)............... 117,826 2,348 3.99 19,021 429 4.51
Other interest-earning assets .......... 46,121 358 1.56 60,769 624 2.07
---------- ---------- ---------- -------
Total interest-earning assets...... 2,034,033 48,444 4.82 1,677,860 44,377 5.36
-------- --------
Allowance for loan losses............... (22,766) (21,846)
Cash and due from banks................. 48,238 48,014
Cash in non-owned ATMs.................. 107,989 82,882
Loans, operating leases and other assets of
discontinued operations............... 7,141 35,686
Bank-owned life insurance............... 45,188 -
Other noninterest-earning assets........ 40,815 31,233
---------- ----------
Total assets....................... $2,260,638 $1,853,829
========== ==========

Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand................... $ 116,392 $ 152 0.26% $ 103,736 $ 187 0.36%
Savings............................ 320,039 655 0.41 305,661 928 0.61
Retail time deposits .............. 224,309 2,090 1.87 266,090 3,259 2.47
Jumbo certificates of deposits .... 44,360 319 1.45 25,460 217 1.72
Brokered certificates of deposit... 5l,330 409 1.60 - - -
---------- ------- ---------- -------
Total interest-bearing deposits.. 756,430 3,625 0.96 700,947 4,591 1.32
FHLB of Pittsburgh advances............. 844,490 11,564 2.71 580,280 10,121 3.47
Trust preferred borrowings.............. 50,774 999 3.89 50,000 989 3.93
Other borrowed funds.................... 190,229 891 0.94 95,268 553 1.16
Cost of funding discontinued operations. (123) - (695)
---------- ------- ---------- -------
Total interest-bearing liabilities. 1,841,923 16,956 1.84 1,426,495 15,559 2.18
------- -------
Noninterest-bearing demand deposits..... 213,472 177,736
Other noninterest-bearing liabilities... 13,358 38,624
Minority interest ...................... 139 33
Stockholders' equity.................... 191,746 210,941
---------- ----------
Total liabilities and stockholders'
equity................................ $2,260,638 $1,853,829
========== ==========
Excess of interest-earning assets
over interest-bearing liabilities.. $ 192,110 $ 251,365
========== ==========
Net interest and dividend income........ $31,488 $28,818
======= =======

Interest rate spread.................... 2.98% 3.18%
===== =====

Net interest margin..................... 3.15% 3.50%
===== =====

(1) Weighted average yields have been computed on a tax-equivalent basis.
(2) Nonperforming loans are included in average balance computations.
(3) Balances are reflected net of unearned income.
(4) Includes securities available-for-sale.

24

Net interest income for the second quarter of 2004 was $15.6 million.
This compares to $14.6 million for the same quarter of 2003. This increase in
net interest income was due to the growth in commercial and commercial real
estate loans, as well as a higher yield on the corporation's MBS portfolio. The
net interest margin of 3.07% for the second quarter of 2004 declined from 3.34%
for the second quarter of 2003. During the second quarter of 2004, the net
interest margin was negatively impacted by, among other things, generally lower
rates on loans, as overall portfolio yields continued to trend down, especially
with the Bank's robust growth in the current low interest rate environment.

Net interest income for the six months ended June 30, 2004 was $31.5
million. This compares to $28.8 million for the same quarter of 2003. This
increase in net interest income was mainly due to the above-mentioned growth in
commercial and commercial real estate loans. The net interest margin of 3.15%
for the first six months of 2004 declined from 3.50% reported for the first six
months of 2003. The net interest margin for the first six months of 2004 was
negatively impacted by the overall loan yields trending down, especially given
the recent growth in the portfolio noted above.

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 U.S.
generally accepted accounting principles and the guidance provided in the
Securities and Exchange Commission's Staff Accounting Bulletin 102 (SAB 102).
It's methodology for assessing the appropriateness of the allowance consists of
several key elements which include: specific allowances for identified problem
loans; formula allowances for commercial and commercial real estate loans; and
allowances for pooled homogenous loans.

Specific reserves are established for certain loans in cases where
management has identified significant conditions or circumstances related to a
specific credit that management believes indicate the probability that a loss
has been incurred.

The formula allowances for commercial and commercial real estate loans
are calculated by applying loss factors to outstanding loans in each case based
on the internal risk grade of loans. Changes in risk grades of both performing
and nonperforming loans affect the amount of the formula allowance. Loss factors
by risk grade have a basis in WSFS' historical loss experience for such loans
and may be adjusted for significant factors that, in management's judgment,
affect the collectability of the portfolio as of the evaluation date. See
discussion of historical loss adjustment factors below.

Pooled loans are loans that are usually smaller,
not-individually-graded and homogenous in nature, such as consumer installment
loans and residential mortgages. Pooled loan loss allowances are based on
historical net charge-offs for six years which management believes approximates
an average business cycle. The average loss allowance per homogenous pool is
based on the product of average annual historical loss rate and the average
estimated duration of the pool multiplied by the 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 quarterly to discuss and
review these conditions and risks associated with individual problem loans. By
assessing 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. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Corporation's allowance for such losses. The Company also gives
consideration to the results of these regulatory agency examinations. The
provision for loan losses from continuing operations decreased from $1.5 million
for the first six months of 2003 to $1.4 million for the first six months of
2004, primarily a result of an overall improvement in credit quality of the
Corporation's loan portfolio.

25

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.

Six months ended Six months ended
June 30, 2004 June 30, 2003
------------- -------------
(Dollars in Thousands)

Beginning balance .......................................... $ 22,386 $ 21,452
Provision for loan losses of continuing operations.......... 1,374 1,500
Charge-offs:
Residential real estate ............................... 188 197
Commercial real estate (1) ............................ - 29
Commercial............................................. 173 222
Consumer .............................................. 462 454
-------- --------
Total charge-offs................................... 823 902
-------- --------
Recoveries:
Residential real estate ............................... 25 -
Commercial real estate (1) ............................ - 230
Commercial ............................................ 129 71
Consumer............................................... 48 108
-------- --------
Total recoveries ................................... 202 409
-------- --------

Net charge-offs ............................................ 621 493
-------- --------
Ending balance.............................................. $ 23,139 $ 22,459
======== ========

Net charge-offs to average gross loans
outstanding, net of unearned income (2)................... 0.09% 0.09%
======== ========

(1) Includes commercial mortgage and construction loans.
(2) Ratios for the six months ended June 30, 2004 and 2003 are annualized.

Noninterest Income

Noninterest income for the quarter ended June 30, 2004 was $8.2 million
compared to $7.3 million for the second quarter of 2003. This increase was due
primarily to fee income of $626,000 from the investment in BOLI. Income from
this long-term illiquid investment is reported as noninterest income in
accordance with U.S. generally accepted accounting principles. In addition, the
increase was due to fee income of $549,000 from Montchanin Capital Management,
Inc., for the quarter ended June 30, 2004. This fee income is a direct result of
the 60% ownership in Cypress Capital Management. The increase was also due to a
$447,000 improvement in credit/debit card and ATM income, $382,000 of which was
due to growth in the CashConnect segment, during the second quarter of 2004
compared to the second quarter of 2003. Offsetting these increases was a
$463,000 decrease in gains on the sales of loans during the second quarter of
2004 compared to the second quarter of 2003. This decrease resulted primarily
from reduced refinancing activity during the second quarter of 2004. In
addition, securities gains were $187,000 lower than the comparable quarter of
2003.

Noninterest income for the six months ended June 30, 2004 was $15.8
million compared to $13.1 million for the same period in 2003. Consistent with
the quarterly results, this improvement was primarily due to fee income of $1.1
million from the investment in BOLI. In addition, the increase was due to year
to date fee income of $1.1 million from Montchanin Capital Management, Inc. The
increase was also due to credit/debt card and ATM income, which increased
$938,000, $763,000 of which was due to growth in the CashConnect segment, over
the same period in 2003. The remainder of the growth in noninterest income for
the six months ended June 30, 2004 was in deposit service charges, which
increased $427,000 compared with the same period in 2003. Offsetting these
increases was a $794,000 decrease in gains on the sales of loans for the six
months ended June 30, 2004 compared to the second quarter of 2003. Consistent
with results in the second quarter of 2004, this decrease resulted from reduced
refinancing activity during the six months ended June 30, 2004 as compared to
the same period in 2003.

26

Noninterest Expense

Noninterest expenses for the quarter ended June 30, 2004 were $13.2
million, or $830,000 higher than the $12.4 million reported in the same period
of 2003. Included in the second quarter 2004 results were $501,000 in operating
expenses related to Montchanin Capital Management, Inc. In addition, salaries,
benefits, and other compensation increased $250,000 (excluding Montchanin
Capital Management, Inc.) during the second quarter 2004 as compared to the
second quarter 2003. This increase was primarily due to normal salary increases
and the Company's continued branch expansion efforts during the second quarter
2004.

Noninterest expenses for the six months ended June 30, 2004 were $26.4
million or $1.1 million higher than the $25.3 million reported in the same
period of 2003. Consistent with the quarter, this increase was primarily due to
$1.0 million in operating expenses related to Montchanin Capital Management,
Inc., during the six months ended June 30, 2004. The results for the six months
ended June 30, 2003 included $1.3 million of expenses recorded in connection
with the sale of WF, the Corporation's sub-prime mortgage banking subsidiary and
$267,000 of expenses related to the Corporation's Technology Organizational and
Process Simplification Plan (TOPS). Excluding the above-mentioned items,
operating expenses increased $1.6 million, primarily in salaries, benefits and
other compensation. This increase was a direct result of normal salary increases
and the Company's continued branch expansion efforts.

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 109, which requires the recording of deferred income
taxes for tax consequences of "temporary differences." The Corporation recorded
a provision for income taxes from continuing operations during the three and six
months ended June 30, 2004 of $3.6 million and $6.9 million, respectively,
compared to an income tax provision from continuing operations of $3.2 million
and $5.4 million, for the same periods in 2003. The effective tax rates from
continuing operations for the three and six months ended June 30, 2004 were 37%
and 36%, respectively, compared to 36% for each of the comparable periods in
2003.

The effective tax rates reflect the recognition of certain tax benefits
in the financial statements including those benefits from tax-exempt interest
income, BOLI income in 2004, from a fifty-percent interest income exclusion on a
loan to an Employee Stock Ownership Plan and a provision for state income tax
expense. The income tax provision for the three months ended June 30, 2004 was
increased by $280,000 as a result of additional state taxes WCC is expected to
owe due to tax law changes in the State of New Jersey. While the operations of
WCC are reflected as discontinued operations, the additional tax provision
resulting from the change in tax law has been reflected in income from
continuing operations in accordance with SFAS 109.

The Corporation analyzes its projections of taxable income on an
ongoing basis and makes adjustments to its provision for income taxes
accordingly.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2003, the FASB issued FIN 46(R), Consolidation of Variable
Interest Entities, an interpretation of Accounting Research Bulletin No. 51 (the
Interpretation). The Interpretation requires the consolidation of entities in
which an enterprise absorbs a majority of the entity's expected losses, receives
a majority of the entity's expected residual returns, or both, as a result of
ownership, contractual or other financial interests in the entity. Previously,
entities were generally consolidated by an enterprise when it has a controlling
financial interest through ownership of a majority voting interest in the
entity. Application of this Interpretation is required in financial statements
of public entities that have interests in variable interest entities commonly
referred to as special purpose entities for periods ending after December 15,
2003. Application by public entities for all other types of entities is required
in financial statements for periods ending after June 15, 2004. As a result the
adoption of FIN 46(R), the Corporation deconsolidated WSFS Capital Trust I in
the first quarter of 2004. The result was an increase in the trust preferred
borrowings of $1.5 million.

In December 2003, the American Institute of Certified Public
Accountants Accounting Standards Executive Committee (AcSEC) issued Statement of
Position (SOP) 03-3, Accounting for Certain Loans or Debt Securities Acquired in
a Transfer. SOP 03-3 is effective for loans acquired in fiscal years beginning
after December 15, 2004, with early adoption encouraged. A certain transition
provision applies for certain aspects of loans currently within the scope of
Practice Bulletin 6, Amortization of Discounts on Certain Acquired Loans. SOP
03-3 addresses accounting for differences between contractual cash flows and
cash flows expected to be collected from an investor's initial investment in
loans or debt securities (loans) acquired in a transfer if those differences are
attributable, at least in part, to credit quality. It includes loans acquired in
business combinations and applies to all nongovernmental entities, including
not-for-profit organizations. SOP 03-3 does not apply to loans originated by the
entity. The Corporation will adopt this statement for any pools of loans
purchased after December 31, 2004.

27

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 from Item 2, of this quarterly report
on Form 10-Q.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. Based on their
evaluation of the Company's disclosure controls and procedures
(as defined in Rules 13a-15(e) under the Securities Exchange Act
of 1934 (the "Exchange Act")), the Company's principal executive
officer and the principal financial officer have concluded that
as of the end of the period covered by this Quarterly Report on
Form 10-Q such disclosure controls and procedures 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.

(b) Changes in internal control over financial reporting. During the
quarter under report, there was no change in the Company's
internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.

Part II. OTHER INFORMATION

Item 1. Legal Proceedings
-----------------
The Company is not engaged in any legal proceedings of a material
nature at June 30, 2004. 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, Uses of Proceeds and Issuer Purchases of Equity
----------------------------------------------------------------------
Securities
----------

The following table lists purchases of Treasury Stock during the
second quarter of 2004.

Total Number of Maximum Number
Total Number Average Shares Purchased of Shares that May
of Shares Price Paid as Part of Publicly Yet Be Purchased
Purchased per Share Announced Plans Under those Plans
-------------- ---------- ----------------- ------------------

April 1, to April 30, 2004 134,894 $48.66 134,000 268,841

May 1, to May 31, 2004 111,000 $47.59 245,000 157,841

June 1, to June 30, 2004 103,900 $47.30 348,900 53,941
-------

Total for the quarter ended June 30, 2004 349,794 $47.92

On August 7, 2003 the Board of Directors approved an authorization to
repurchase 10% of the Company's outstanding shares, or 748,841
shares. In addition, on June 24, 2004 the Board of Directors approved
an authorization to repurchase 10% of the Company's outstanding
shares, or 701,564 shares.

There is no expiration date under either Plan.

28

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 22, 2004, all the nominees for director proposed by the
Corporation were elected. The votes cast for each nominee were as
follows:

For Withheld
--- --------
John F. Downey................ 5,484,081 65,660
Thomas P. Preston............. 7,207,278 1,603,791
Marvin N. Schoenhals.......... 5,413,875 135,867
R. Ted Weschler............... 5,426,902 122,839

At the Meeting, the shareholders also ratified the appointment of
KPMG, LLP as independent auditors for fiscal year ending December 31,
2004. The votes cast were as follows:

For Against Abstain
--- ------- -------
6,298,001 61,353 5,719

Item 5. Other Information
-----------------
Not applicable

Item 6. Exhibits and Reports on Form 8-K
--------------------------------

(a) Exhibit 31 - Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
(b) Exhibit 32 - Certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(c) Exhibits and Reports on Form 8-K
(1) On April 21, 2004, the Registrant filed a report on Form 8-K
pursuant to items 7 and 12 to report earnings for the
quarter ended March 31, 2004.
(2) On June 25, 2004, the Registrant filed a report on Form 8-K
pursuant to items 5 and 7 announcing an authorization to
repurchase up to an additional 10% of its outstanding shares
of common stock.

29

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

WSFS FINANCIAL CORPORATION

Date: August 4, 2004 /s/ MARVIN N. SCHOENHALS
---------------------------------------------------
Marvin N. Schoenhals
Chairman and President

Date: August 4, 2004 /s/ MARK A. TURNER
---------------------------------------------------
Mark A. Turner
Chief Operating Officer and Chief Financial Officer

30