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WSFS | Financial Corporation | | WSFS Bank Center 500 Delaware Avenue, Wilmington, Delaware 19801 |
PRESS RELEASE
FOR IMMEDIATE RELEASE | Contact: Stephen A. Fowle |
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October 25, 2007 | (302) 571-6833 |
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WSFS REPORTS 3Q '07 EPS OF $1.11
WSFS Financial Corporation (NASDAQ/GS: WSFS), the parent company of Wilmington Savings Fund Society, FSB, reported quarterly net income of $7.1 million, or $1.11 per diluted share, compared to $8.0 million or $1.16 in the third quarter of 2006. Net income for the first nine months of 2007 was $22.2 million, or $3.38 per diluted share, compared to $22.8 million or $3.31 in the first nine months of 2006.
Highlights include:
| • | Total commercial loans increased 16%, or $203.7 million from the third quarter of 2006. |
| • | Customer deposits increased 12%, or $156.3 million from the third quarter of 2006. |
| • | During the quarter, WSFS sold its $5.3 million credit card portfolio, providing the Company a $1.4 million pre-tax earnings benefit. |
| • | Noninterest income, excluding the credit card sale, grew 16%, or $1.6 million over the third quarter of 2006. |
| • | During the quarter, the Company repurchased 86,100 shares of stock, slightly more than 1% of shares outstanding. |
| • | During the quarter, the Company introduced a multi-year brand campaign with the tag line “We Stand For Service”TM which leverages the Bank’s Stellar Service value proposition in a unique and memorable way. The multi-media commercials star WSFS customers sharing “What WSFS Means To Me” in their own words. |
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WSFS | Financial Corporation | | WSFS Bank Center 500 Delaware Avenue, Wilmington, Delaware 19801 |
Results for the quarter were impacted by an $882,000 gain ($0.09 per share) on the sale of the Company’s credit card portfolio, and a related $518,000 reduction ($0.05 per share) to the allowance for loan losses. This resulted in a combined earnings per share benefit of $0.14 for the quarter. Through a marketing partnership with the purchaser, WSFS will be able to provide a stronger offering of WSFS-branded credit cards to its customers. Future revenue sharing with the purchaser, and expense savings related to the servicing of the portfolio, will benefit the Company, while net interest income will decrease as a result of the sale of the credit card loans. Additionally, one commercial lending relationship totaling $10.3 million, secured by real estate, was placed on nonaccrual status. This resulted in a $618,000 increase ($0.06 per share) in the Company’s provision for loan losses expense and a $256,000 reversal ($0.03 per share) of interest income. The Company also took a $228,000 charge ($0.02 per share) related to closing one of its branches. Finally, WSFS recorded a $260,000 decrease in tax expense ($0.04 per share) resulting from adjustments made to estimates in accordance with new tax accounting guidance. The Company expects periodic adjustments related to these estimates.
Third Quarter 2007 Financial Highlights
Net interest income increased 5% over the third quarter of 2006
Net interest income for the third quarter of 2007 was $20.1 million, an increase of $1.0 million from the third quarter of 2006. The net interest margin improved by 16 basis points (0.16%) to 3.04% during the third quarter of 2007, from 2.88% reported in the third quarter of 2006. Included in the current quarter’s results was the impact of the commercial credit relationship described above which negatively impacted the net interest margin by 4 basis points (0.04%). The third quarter of 2006 included a $411,000 (6 basis points, 0.06%) non-cash charge related to the refinancing of the Company’s trust preferred securities. The overall improvement in the margin over last year reflects growth, and the Company’s continued efforts to refocus the mix of its balance sheet.
This quarter’s net interest income was equal to the net interest income in the second quarter of 2007. However, the net interest margin of 3.04% for the third quarter of 2007 decreased 6 basis points from the second quarter of 2007. The results for this quarter included a
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WSFS | Financial Corporation | | WSFS Bank Center 500 Delaware Avenue, Wilmington, Delaware 19801 |
four basis point (0.04%) impact from the previously mentioned lending relationship. In addition, the second quarter of 2007 included an additional $249,000 (four basis points, 0.04%) of income related to reverse mortgages compared to the third quarter of 2007.
Over the past several years, the Company has maintained a neutral to slightly negative one-year repricing gap to total assets. A negative gap indicates that more liabilities will reprice within one year than will assets. As a result, negatively-gapped companies generally benefit from falling interest rates.
Total commercial loans increased 16% or $203.7 million from the third quarter of 2006
Commercial and commercial real estate (CRE) loans increased a strong $203.7 million, or 16% over September 30, 2006. Net loans were $2.2 billion at September 30, 2007, an increase of $170.4 million, or 9%, over September 30, 2006. Overall, net loan growth in this quarter was tempered by the previously mentioned credit card sale and a planned decrease in residential mortgages retained on the balance sheet as part of the Company’s efforts to realign the balance sheet toward higher yielding assets.
Commercial and CRE loans increased $82.3 million, or 6% (24% annualized) over June 30, 2007, while net loans increased $72.5 million, or 3% (14% annualized).
The following table summarizes the current loan balances and composition compared to historical periods.
(Dollars in thousands) | | At Sep. 30, 2007 | | | | At June 30, 2007 | | | | At Sep. 30, 2006 | |
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| | Amount | | | | % | | | | Amount | | | | % | | | | Amount | | | | % | |
Commercial and CRE | | $ | 1,467,960 | | | | 68 | % | | | $ | 1,385,662 | | | | 66 | % | | | $ | 1,264,246 | | | | 64 | % |
Residential | | | 450,364 | | | | 21 | | | | | 457,881 | | | | 22 | | | | | 484,726 | | | | 24 | |
Consumer | | | 268,468 | | | | 12 | | | | | 270,297 | | | | 13 | | | | | 265,378 | | | | 13 | |
Allowance for loan losses | | | (28,768 | ) | | | (1 | ) | | | | (28,359 | ) | | | (1 | ) | | | | (26,747 | ) | | | (1 | ) |
Net Loans | | $ | 2,158,024 | | | | 100 | % | | | $ | 2,085,481 | | | | 100 | % | | | $ | 1,987,603 | | | | 100 | % |
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WSFS | Financial Corporation | | WSFS Bank Center 500 Delaware Avenue, Wilmington, Delaware 19801 |
Asset quality
The Company recorded a provision for loan losses of $1.0 million in the third quarter of 2007 compared to $319,000 in the third quarter of 2006 and $1.3 million in the second quarter of 2007. The provision exceeded net charge-offs for both the second and third quarters of 2007. Compared to the second quarter of 2007 the provision was effected by: (1) growth in the Company’s commercial loan portfolio; (2) an increase of $618,000 due to the previously mentioned lending relationship; (3) a decrease of $518,000 resulting from the sale of the credit card portfolio.
Nonperforming assets increased $12.2 million compared to the second quarter of 2007. This increase was mainly due to the $10.3 million previously mentioned lending relationship that was placed on nonaccrual status. Nonperforming assets as a percentage of assets were 0.53% at September 30, 2007 compared to 0.14% at June 30, 2007 and 0.18% at September 30, 2006. Annualized net charge-offs in the third quarter of 2007 remained low at only 0.11% of average loans. This compares to annualized net charge-offs of 0.10% for the second quarter of 2007 and annualized net charge-offs of 0.05% for the third quarter of 2006. Annualized net charge-offs for the first nine months of 2007 were 0.08% compared to 0.02% for the first nine months of 2006, both relatively low by historical standards. The ratio of allowance for loan losses to total loans is 1.32% at September 30, 2007, compared to 1.34% at June 30, 2007 and 1.33% at September 30, 2006.
Mark A. Turner, WSFS President and CEO said, “Based on an analysis of the $10.3 million lending relationship, we believe we are adequately secured and specific reserves are appropriate given our loss exposure. Given the reported weakness in many real estate markets, we conducted a thorough review of the Company’s exposure to construction, land development, residential mortgages and other residential equity lending and we continue to monitor our entire portfolio. While delinquency and nonperforming assets have increased from unsustainably low levels of recent years, our asset quality statistics remain very favorable by historical standards.”
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WSFS | Financial Corporation | | WSFS Bank Center 500 Delaware Avenue, Wilmington, Delaware 19801 |
“The Company has a very small position, less than $17.4 million, in subprime residential mortgages. The bank’s sub-prime delinquency ratio of 4.16% is less than one-third of the average experienced by banks in surrounding states, based on the most recent available data (second quarter of 2007). We believe this is due in large part to the seasoning of our portfolio and good underwriting standards.”
Customer deposits increased 12% or $156.3 million from the third quarter of 2006
Total customer deposits (core deposits and customer time deposits) were $1.4 billion at September 30, 2007, an increase of $156.3 million, or 12%, over balances at September 30, 2006. As a result of this franchise growth, wholesale funding, which excludes customer-related funding, decreased $117.2 million, or 9% during the same time period. Wholesale funding reliance improved to 39% of total assets at September 30, 2007 from 44% at September 30, 2006.
Customer deposits decreased $15.9 million, or 1% from June 30, 2007. This variance was mainly due to a $23.1 million decrease in non-interest bearing demand accounts reflecting seasonal variability in these accounts, partially offset by a $10.2 million increase in interest bearing transaction accounts.
The following table summarizes the current customer deposit balances and composition compared to historical periods.
(Dollars in thousands) | | At Sep. 30, 2007 | | | At June 30, 2007 | | | At Sep. 30, 2006 | |
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| | Amount | | | % | | | Amount | | | % | | | Amount | | | % | |
Non-interest demand | | $ | 272,678 | | | 19 | % | | $ | 295,729 | | | 20 | % | | $ | 263,363 | | | 20 | % |
Interest bearing demand | | | 172,680 | | | 12 | | | | 162,487 | | | 11 | | | | 127,861 | | | 10 | |
Savings | | | 203,560 | | | 14 | | | | 216,104 | | | 15 | | | | 238,978 | | | 19 | |
Money market | | | 311,132 | | | 21 | | | | 308,639 | | | 21 | | | | 235,210 | | | 18 | |
Total core deposits | | | 960,050 | | | 66 | | | | 982,959 | | | 67 | | | | 865,412 | | | 67 | |
Customer time | | | 488,735 | | | 34 | | | | 481,742 | | | 33 | | | | 427,025 | | | 33 | |
Total customer deposits | | $ | 1,448,785 | | | 100 | % | | $ | 1,464,701 | | | 100 | % | | $ | 1,292,437 | | | 100 | % |
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WSFS | Financial Corporation | | WSFS Bank Center 500 Delaware Avenue, Wilmington, Delaware 19801 |
Noninterest income grows $2.5 million, or 24% over the third quarter of 2006
During the third quarter of 2007, the Company recorded noninterest income of $12.8 million, which increased $2.5 million, or 24%, when compared to the third quarter of 2006. This increase included the $882,000 gain on the previously mentioned sale of the credit card portfolio, a $958,000 increase in deposit service charges and a $223,000 increase in credit/debit card and ATM income. Deposit service charge income continues to grow as a result of an increase in deposit accounts and additional fee-based services offered by WSFS. Excluding the credit card sale, noninterest income increased by $1.6 million, or 16%.
Noninterest income was $1.2 million or 10% higher than the second quarter of 2007. The increase in noninterest income over the second quarter of 2007 was mainly attributable to the gain on the sale of the credit card portfolio and a seasonal increase in credit/debit card and ATM income.
Excluding the sale of the credit card portfolio, fee revenues represented a healthy 37% of total revenues compared to 35% during the third quarter of 2006 and 36% during the second quarter of 2007.
Noninterest expense increase reflected growth and investment in franchise
Noninterest expenses for the third quarter of 2007 totaled $21.3 million, which was $3.7 million, or 21%, greater than the third quarter of 2006. This increase was mainly attributable to the Company’s continued growth efforts. Since September 2006, this expansion included the opening of four new branch offices, two branch renovations/relocations, the move to new corporate headquarters, the continued growth of the Wealth Management Division (which opened its first trust and investment accounts during the first quarter of 2007), the continued expansion of the commercial division, and the formation of a reverse mortgage business unit in the second half of 2006. Also during the third quarter of 2007, marketing expenses increased $607,000 over the third quarter of 2006, partially due to the launch of the multi-year brand campaign and to support the growth efforts mentioned above. In addition, the Company took a $228,000 charge related to closing one of its branches. The Company continues to have success
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WSFS | Financial Corporation | | WSFS Bank Center 500 Delaware Avenue, Wilmington, Delaware 19801 |
with its business model, is gaining market share, and is investing in the future. This growth and investment is Company-wide and, as expected, has had an impact on many expense categories within the Company.
Noninterest expenses increased $2.3 million over the second quarter of 2007. Marketing expenses increased $416,000 compared to the second quarter of 2007 mainly due to the introduction of the brand campaign and the previously mentioned charge related to closing one of its branches. In addition, the Company reversed $258,000 in expenses related to its 401(k) plan and had a $212,000 reduction to its reserve for its standby letters of credit during the second quarter of 2007. The Company’s continued franchise growth is also reflected in higher compensation and equipment expenses.
Income taxes
The Company recorded a $3.4 million income tax provision in the third quarter of 2007 (reflecting a 32.4% effective tax rate) versus $3.5 million in the third quarter of 2006 (30.5% effective tax rate). The less-than-statutory tax rate in the third quarter of 2007 resulted from a number of factors, including a decrease in the Company’s income tax reserve. This adjustment was partially due to effects of adjustments made to estimates in accordance with new tax accounting guidance. The Company expects periodic adjustments related to these estimates. The unusually low tax rate in the third quarter of 2006 includes the impact of $1.8 million in unanticipated income related to the Company’s investment in bank-owned life insurance (BOLI). This benefit was non-taxable income to the bank and, therefore, reduced the effective tax rate.
Capital
During the third quarter of 2007, the Company continued its history of returning earnings to shareholders by repurchasing 86,100 shares of common stock at an average price of $56.38
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WSFS | Financial Corporation | | WSFS Bank Center 500 Delaware Avenue, Wilmington, Delaware 19801 |
per share. Since the beginning of 2007 the Company has repurchased 513,600 shares, or 8% of its common stock at an average price of $65.18 per share. During the quarter, the Board of Directors approved an open authorization to repurchase up to an additional 10% of its outstanding shares of common stock, or approximately 630,000 shares.
The ratio of tangible equity to assets was 6.49% at September 30, 2007. The Tier 1 capital ratio was 11.10%, nearly double the 6.00% level required to be considered “well-capitalized” under regulatory definitions. Tangible book value per share increased to $32.18 at September 30, 2007, from $31.47 at June 30, 2007 and $30.87 at September 30, 2006.
CEO outlook and commentary
Mr. Turner remarked, “The banking industry faces strong headwinds. We are not immune from these, but we believe we have anticipated and are actively responding to these challenges. Our response has included limiting construction and development loans well ahead of regulatory guidance, ensuring industry and geographic diversification of our loan portfolio, responding to margin pressure through balance sheet realignment and, most recently, identifying revenue enhancement and cost cutting opportunities. We will continue to cultivate these efforts.”
Mr. Turner continued, “Our business model is built on Engaged Associates creating Customer Advocates. In July we were again named one of the best places to work in Delaware in a survey conducted by the Wilmington News Journal; and customer surveys conducted by the Gallup Organization, rank us “world class” for customer advocacy putting us in the top 10% of the many companies they conduct surveys for. Our success in creating a local, focused, high-service business model has allowed us to continue to take market share from our competition. In the last two years we have improved from #5 to a solid, and climbing, #4 in local deposits based on FDIC-reported data. In commercial banking, we continue to solidify our #2 market share position based on an internal analysis of our market.”
Mr. Turner finished, “We continue to invest in the future of WSFS. This comes at a cost, as many of the investments are still in their early stages of maturity. As part our
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WSFS | Financial Corporation | | WSFS Bank Center 500 Delaware Avenue, Wilmington, Delaware 19801 |
investment, this quarter we kicked off a multi-year “We Stand For Service™” brand campaign to further build awareness of our service value proposition. In this campaign our customers present their testimonials on why they have truly become WSFS’ Customer Advocates.”
WSFS’ Board of Directors declares a quarterly cash dividend of $0.10 per share
The Board of Directors has declared a quarterly cash dividend of $0.10 per share. This dividend represents a 25% increase from that of the third quarter of 2006. This dividend will be paid on November 23, 2007, to shareholders of record as of November 9, 2007.
WSFS Financial Corporation is a $3 billionfinancial services company. Its principal subsidiary, Wilmington Savings Fund Society, FSB, currently operates 29 retail banking offices in all three counties in Delaware, as well as Chester and Delaware Counties in Pennsylvania, providing full banking services under the WSFS Bank brand, and wealth management and personal trust services under Wilmington Advisors, a division of WSFS Bank. Other subsidiaries include: WSFS Investment Group, Inc., Montchanin Capital Management, Inc. and WSFS Reit, Inc. WSFS, celebrating its 175th anniversary, is one of the ten oldest banks continuously operating under the same name in the United States. For more information, please visit the Bank’s website at http://www.wsfsbank.com .
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Statements contained in this news release which are not historical facts, are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by WSFS Financial Corporation with the Securities and Exchange Commission from time to time. The Corporation does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Corporation.
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