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 September 30, 1996
----------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-16668
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WSFS FINANCIAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 22-2866913
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
838 Market Street, Wilmington, Delaware 19899
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(302) 792-6000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
------ ------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of November 8, 1996:
Common Stock, par value $.01 per share 13,789,826
- -------------------------------------- --------------------
(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 Nine Months
Ended September 30, 1996 and 1995 (Unaudited)............................... 3
Consolidated Statement of Condition as of September 30, 1996
(Unaudited) and December 31, 1995........................................... 4
Consolidated Statement of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995 (Unaudited)..................................... 5
Notes to the Consolidated Financial Statements for the Three and Nine
Months Ended September 30, 1996 and 1995 (Unaudited)........................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 7
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K............................................. 18
Signatures . . . . . . . . . .. ...................................................... 19
-2-
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1996 1995 1996 1995
----------- ---------- --------- --------
(Unaudited)
(Dollars in Thousands, Except Per Share Data)
Interest income:
Interest and fees on loans............................ $ 19,145 $ 18,861 $ 57,269 $ 53,515
Interest on mortgage-backed securities................ 5,239 4,158 14,346 12,739
Interest and dividends on investment securities....... 685 594 1,635 2,709
Other interest income................................. 1,283 653 5,010 4,812
----------- ---------- ----------- -----------
26,352 24,266 78,260 73,775
----------- ---------- ---------- ----------
Interest expense:
Interest on deposits.................................. 7,870 8,604 23,444 26,267
Interest on Federal Home Loan Bank advances........... 4,514 4,116 13,719 10,913
Interest on senior notes.............................. 829 850 2,504 2,649
Interest on federal funds purchased and securities
sold under agreements to repurchase................. 1,762 1,205 4,120 3,278
Interest on other borrowed funds...................... 80 146 264 467
----------- ------------- ------------ ------------
15,055 14,921 44,051 43,574
----------- ------------ ----------- -----------
Net interest income...................................... 11,297 9,345 34,209 30,201
Provision for loan losses................................ 477 47 1,285 1,054
------------ ------------- ------------ ------------
Net interest income after provision for loan losses...... 10,820 9,298 32,924 29,147
------------ ------------- ------------ -----------
Other income:
Gain on the sale of deposits.......................... 14,247 14,247
Loan servicing fee income............................. 859 722 2,447 2,193
Service charges on deposit accounts................... 739 716 2,134 2,107
Securities gains (losses)............................. (331) 75 (408) 246
Other income.......................................... 617 770 1,647 1,700
------------ ------------- --------------- -----------
1,884 16,530 5,820 20,493
------------ ------------- --------------- -----------
Other expenses:
Salaries.............................................. 3,534 4,368 10,628 11,937
Employee benefits and other personnel expense......... 916 1,614 2,679 3,560
Equipment expense..................................... 313 339 945 965
Data processing expense............................... 595 577 1,761 1,690
Occupancy expense..................................... 634 621 1,857 1,840
Marketing expense..................................... 171 276 510 884
Professional fees..................................... 451 (2) 1,140 670
Federal deposit insurance premium..................... 59 42 78 1,041
Net costs of assets acquired through foreclosure...... 277 523 1,104 2,043
Other operating expenses.............................. 1,190 1,460 3,808 4,000
-------------- ------------ ------------- ------------
8,140 9,818 24,510 28,630
-------------- ------------ ------------ ------------
Income before taxes...................................... 4,564 16,010 14,234 21,010
Income tax provision (benefit)........................... (1,668) 985 1,652 (80)
-------------- ------------ ------------ ------------
Net income............................................... $ 6,232 $ 15,025 $ 12,582 $ 21,090
============= ============ ============== ============
Earnings per share....................................... $ .45 $ 1.02 $ .88 $ 1.44
Weighted average shares outstanding...................... 13,985,811 14,691,473 14,250,505 14,659,508
The accompanying notes are an integral part of these financial statements.
-3-
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
September 30, December 31,
1996 1995
----------- ------------
(Unaudited)
(Dollars in Thousands)
Assets
Cash and due from banks........................................................ $ 29,165 $ 31,135
Federal funds sold and securities purchased under agreements to resell......... 16,000 31,500
Interest-bearing deposits in other banks....................................... 2,218 4,768
Investment securities held-to-maturity......................................... 18,444 22,378
Investment securities available-for-sale....................................... 35,529 6,394
Mortgage-backed securities held-to-maturity.................................... 246,919 219,727
Mortgage-backed securities available-for-sale.................................. 52,660 17,405
Investment in reverse mortgages, net........................................... 37,853 35,614
Loans held for sale............................................................ 1,336 4,345
Loans, net of allowance for loan losses of $24,564 at September 30, 1996
and $24,167 at December 31, 1995............................................. 805,620 787,839
Stock in Federal Home Loan Bank of Pittsburgh, at cost......................... 15,153 15,860
Assets acquired through foreclosure............................................ 6,439 11,614
Premises and equipment......................................................... 6,043 6,372
Accrued interest and other assets.............................................. 33,335 23,875
---------- ----------
Total assets................................................................... $1,306,714 $1,218,826
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits....................................................................... $ 736,133 $ 724,030
Federal funds purchased and securities sold under agreements to repurchase..... 121,157 56,159
Federal Home Loan Bank advances................................................ 303,055 307,206
Senior notes................................................................... 29,100 29,850
Other borrowed funds........................................................... 7,969 7,430
Accrued expenses and other liabilities......................................... 28,636 20,605
---------- ----------
Total liabilities.............................................................. 1,226,050 1,145,280
---------- ----------
Commitments and contingencies
Stockholders' Equity:
Serial preferred stock $.01 par value, 7,500,000 shares authorized; 10%
Convertible Preferred Stock, Series 1, 2,000,000 shares authorized; none
issued and outstanding.......................................................
Common stock $.01 par value, 20,000,000 shares authorized; issued
13,842,198 at September 30, 1996 and 14,509,298 at December 31, 1995......... 146 145
Capital in excess of par value................................................. 57,289 57,136
Net unrealized losses on securities available-for-sale......................... (135) (242)
Retained earnings ............................................................. 29,089 16,507
Treasury stock at cost, 725,300 shares at September 30, 1996................... (5,725)
---------- ----------
Total stockholders' equity..................................................... 80,664 73,546
---------- ----------
Total liabilities and stockholders' equity..................................... $1,306,714 $1,218,826
========== ==========
The accompanying notes are an integral part of these financial statements.
-4-
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended
September 30,
----------------------
1996 1995
--------- ---------
(Unaudited)
(In Thousands)
Operating activities:
Net income ................................................................... $ 12,582 $ 21,090
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses ................................................. 1,285 1,054
Provision for losses on assets acquired through foreclosure ............... 325 956
Depreciation, accretion and amortization .................................. (523) (1,083)
Increase in accrued interest receivable and other assets .................. (4,671) (3,193)
Origination of loans held for sale ........................................ (23,857) (18,274)
Proceeds from sales of loans held for sale ................................ 26,908 15,534
Gain on sale of deposits .................................................. (16,553)
Loss on property and equipment liquidation related to deposit sale ........ 2,318
Increase in accrued interest payable on deposits and other liabilities .... 7,556 14,073
Other, net ................................................................ (482) 37
--------- ---------
Net cash provided by operating activities ....................................... 19,123 15,959
--------- ---------
Investing activities:
Net decrease in interest-bearing deposits in other banks ..................... 2,550 3,207
Maturities of investment securities held-to-maturity ......................... 3,535 929
Sales of investment securities available-for-sale ............................ 25,825 63,493
Purchases of investment securities available for sale ........................ (54,615) (39,973)
Repayments of mortgage-backed securities held-to-maturity .................... 36,474 16,509
Repayments of mortgage-backed securities available-for-sale .................. 795 1,496
Purchases of mortgage-backed securities held-to-maturity ..................... (61,441)
Purchases of mortgage-backed securities available-for-sale ................... (38,763)
Repayments of reverse mortgages .............................................. 8,328 9,422
Disbursements for reverse mortgages .......................................... (9,102) (11,641)
Sales of loans ............................................................... 4,297 6,196
Purchases of loans ........................................................... (12,897) (48,856)
Net increase in loans ........................................................ (12,331) (22,306)
Net increase decrease) in stock in the Federal Home Loan Bank of Pittsburgh .. 707 (4,078)
Sales of assets acquired through foreclosure ................................. 4,505 6,639
Disbursements for real estate held for investment ............................ (1,361)
Other, net ................................................................... (11) 435
--------- ---------
Net cash used for investing activities .......................................... (103,505) (18,528)
--------- ---------
Financing activities:
Net increase (decrease) in demand and savings deposits ....................... 484 (22,265)
Net increase in certificates of deposit and time deposits .................... 14,592 110,534
Sale of deposits, net ........................................................ (180,758)
Net increase in federal funds purchased and securities sold under
agreements to repurchase .................................................... 64,998 15,250
Receipts from additional other borrowed funds ................................ 55,000 120,000
Repayments of other borrowed funds ........................................... (61,840) (41,330)
Repurchase of senior notes ................................................... (750) (2,150)
Issuance of common stock ..................................................... 153 4
Purchase treasury stock ...................................................... (5,725)
--------- ---------
Net cash provided by (used for) financing activities ............................ 66,912 (715)
--------- ---------
Decrease in cash and cash equivalents ........................................... (17,470) (3,284)
Cash and cash equivalents at beginning of period ................................ 62,635 54,974
--------- ---------
Cash and cash equivalents at end of period ...................................... $ 45,165 $ 51,690
========= ---------
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest .................................................................... $ 36,929 $ 31,263
Income taxes, net ........................................................... 4,568 2,322
Loans transferred to assets acquired through foreclosure, net ................ 3,830 5,336
Net unrealized gains (losses) on securities available-for-sale, net of tax ... 107 1,268
Assets acquired through foreclosure transferred to investments in real estate 4,258
The accompanying notes are an integral part of these financial statements.
-5-
WSFS FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
WSFS Financial Corporation (the "Corporation") is the parent company of
Wilmington Savings Fund Society, FSB (the "Bank"). The consolidated financial
statements for the three and nine months ended September 30, 1996 include the
accounts of the parent company, the Bank and its wholly owned subsidiaries, WSFS
Credit Corporation, Providential Home Income Plan, Inc., 838 Investment Group,
Inc., Community Credit Corporation and Star States Development Company.
The consolidated statement of condition as of September 30, 1996, the
consolidated statement of operations for the three and nine months ended
September 30, 1996 and 1995 and the consolidated statement of cash flows for the
nine months ended September 30, 1996 and 1995 are unaudited and include all
adjustments solely of a normal recurring nature which management believes are
necessary for a fair presentation. All significant intercompany transactions are
eliminated in consolidation. Certain reclassifications have been made to prior
periods' financial statements to conform them to the September 30, 1996
presentation. The results of operations for the three and nine month periods
ending September 30, 1996 are not necessarily indicative of the expected results
for the full year ending December 31, 1996. The accompanying unaudited financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Corporation's 1995 Annual Report.
2. EARNINGS PER SHARE
Earnings per share is computed by dividing income applicable to common
stockholders by the weighted average number of common stock and common stock
equivalents outstanding during the periods presented. Common stock equivalents
represent the dilutive effect of the assumed exercise of certain outstanding
stock options.
3. ACQUISITION OR DISPOSITION OF ASSETS
On July 28, 1995, the Corporation's wholly-owned subsidiary, Fidelity Federal
Savings and Loan Association (the "Association"), completed the sale of deposits
and certain real estate at four of its branches to Commonwealth Savings Bank.
Commonwealth assumed approximately $197.3 million of deposit liabilities in
exchange for certain branch related assets, loans and cash. The Corporation
reported a gain of approximately $12.5 million, net of taxes, or $.85 per
outstanding share from this sale. In November 1995, the remaining operations of
the Association were merged into WSFS.
-6-
WSFS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
WSFS Financial Corporation (the "Corporation") is a savings and loan holding
company headquartered in Wilmington, Delaware. Substantially, all of the
Corporation's assets are held by its subsidiary, Wilmington Savings Fund
Society, FSB (the "Bank" or "WSFS"), the largest thrift institution
headquartered in Delaware and among the five largest financial institutions in
the state on the basis of total deposits.
The Corporation's market area is the Mid-Atlantic region of the United States
which is characterized by a diversified manufacturing and service economy. The
banking operations of WSFS are presently conducted from 14 retail banking
offices located in the greater Wilmington and Dover, Delaware area. The Bank
provides residential real estate, commercial real estate, commercial and
consumer lending services and funds these activities primarily by attracting
retail deposits. Deposits are insured by the Federal Deposit Insurance
Corporation.
Additional subsidiaries of the Bank include WSFS Credit Corporation, which is
engaged primarily in motor vehicle leasing, and 838 Investment Group, Inc. which
markets various insurance products and mutual funds through the Bank's branch
system. Community Credit Corporation ("CCC") specializes in consumer loans
secured by first and second mortgages. In November 1994, the Bank acquired
Providential Home Income Plan, Inc. ("Providential"), a San Francisco,
California-based reverse mortgage lender. Providential is expected to be merged
into WSFS in the fourth quarter of 1996. Management and operations of
Providential's reverse mortgage portfolio will be absorbed by WSFS. In addition,
Providential acted as servicer for a portfolio of Federal Housing Administration
Home Equity Conversion Mortgages and Fannie Mae HomeKeeper Mortgages. Effective
October 31, 1996, Providential sold the servicing rights and other assets
related to these reverse mortgages. The sale of this servicing did not result in
a significant gain or loss. An additional Bank subsidiary, Star States
Development Company, is currently phasing down its real estate investments and
developments.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Financial Condition
Total assets grew $87.9 million, or 7.2%, during the nine months ended
September 30, 1996 to $1.3 billion. The majority of this growth occurred in
mortgage-backed securities which increased $62.4 million. This increase resulted
from the purchase of approximately $100.0 million in collateralized mortgage
obligations, offset in part by principal repayments of the portfolio. In
addition, investment securities and net loans increased $25.2 million and $14.8
million, respectively. These increases were funded through short-term borrowings
and deposit growth as well as the use of existing liquidity.
Total liabilities increased by $80.8 million between September 30, 1996 and
December 31, 1995. This increase is due in part to $65.0 million of additional
short-term borrowings. In addition, deposits increased $12.1 million during the
nine months ended September 30, 1996. Interest credited to deposits during the
nine months totalled $10.4 million for a net deposit inflow of $1.7 million.
Deposit growth included the acquisition of $10.4 million in deposits from
another institution located in Dover, Delaware, offset in part by an outflow of
deposits.
-7-
Capital Resources
Stockholders' equity increased $7.1 million between December 31, 1995 and
September 30, 1996. This increase reflects net income of $12.6 million for the
first nine months of 1996, offset in part by the impact of a stock repurchase
program which began in March 1996. The Corporation completed this stock
repurchase program in May 1996 and acquired 725,300 shares, or approximately 5%
of the common stock outstanding, in open market transactions for $5.7 million.
On October 28, 1996, the Corporation announced that its Board of Directors had
approved a second stock repurchase program to purchase up to 10% of its
outstanding common stock, $.01 par value per share. Under the new repurchase
program, stock repurchases may be effected through open-market repurchases and
privately negotiated transactions.
A table presenting the Bank's consolidated capital position relative to the
minimum regulatory requirements as of September 30, 1996 follows (dollars in
thousands):
Consolidated Regulatory
Bank Capital Requirement Excess
-------------------- -------------------- --------------------
Percent of Percent of Percent of
Amount Assets Amount Assets Amount Assets
------ ---------- ------ ---------- ------ ----------
Tangible Capital.......................... $97,934 7.51% $19,559 1.50% $78,375 6.01%
Core Capital.............................. 97,934 7.51 52,158 4.00 45,776 3.51
Tier 1 Capital............................ 97,934 11.20 34,979 4.00 62,955 7.20
Risk-based Capital........................ 101,884 11.65 69,957 8.00 31,927 3.65
Under Office of Thrift Supervision (OTS) capital regulations, savings
institutions such as the Bank must maintain "tangible" capital equal to 1.5% of
adjusted total assets, "core" capital equal to 4.0% of adjusted total assets and
"total" or "risk-based" capital (a combination of core and "supplementary"
capital) equal to 8.0% of risk-weighted assets. In addition, OTS regulations
impose certain restrictions on savings associations that have a total risk-based
capital ratio that is less than 8.0%, a ratio of tier 1 capital to risk-weighted
assets of less than 4.0% or a ratio of tier 1 capital to adjusted total assets
of less than 4.0% (or 3.0% if the institution is rated Composite 1 under the OTS
examination rating system). For purposes of these regulations, tier 1 capital
has the same definition as core capital. At September 30, 1996 the Bank is
classified as a "well capitalized" institution and is in compliance with all
regulatory capital requirements.
Liquidity
The OTS requires institutions, such as the Bank to maintain a 5.0% minimum
liquidity ratio of cash and qualified assets to net withdrawable deposits and
borrowings due within one year. At September 30, 1996, the Bank's liquidity
ratio was 8.4% compared to 8.0% at December 31, 1995. Additionally, the
Corporation is required to maintain a reserve of 100% of the aggregate interest
expense for 12 full calendar months on the $29.1 million of 11% senior notes.
The interest reserve requirement on the senior notes at September 30, 1996 was
approximately $3.2 million.
-8-
NONPERFORMING ASSETS
The following table sets forth the Corporation's nonperforming assets,
restructured loans and past due loans at the dates indicated. Past due loans are
loans contractually past due 90 days or more as to principal or interest
payments but which remain on accrual status because they are considered well
secured and in the process of collection.
September 30, December 31,
1996 1995
------------- ------------
(Dollars in Thousands)
Nonaccruing loans:
Commercial........................................... $ 697 $ 563
Consumer............................................. 228 291
Commercial mortgages................................. 3,495 2,527
Residential mortgages................................ 3,031 3,568
Construction......................................... 3,532 3,588
------------- --------------
Total nonaccruing loans................................. 10,983 10,537
Nonperforming investments in real estate................ 1,252 1,252
Assets acquired through foreclosure..................... 6,439 11,614
-------------- --------------
Total nonperforming assets.............................. $ 18,674 $ 23,403
============= ==============
Restructured loans...................................... $ 17,359 $ 17,393
============= ==============
Past due loans:
Residential mortgages............................... $ 1,029 $ 111
Commercial and commercial mortgages................. 63 789
Consumer............................................ 222 143
-------------- ---------------
Total past due loans................................... $ 1,314 $ 1,043
============== ================
Ratios:
Nonaccruing loans to total loans (1)................ 1.26% 1.30%
Allowance for loan losses to total
gross loans (1)................................... 2.89 2.90
Nonperforming assets to total assets................ 1.43 1.92
(1) Excludes loans held for sale.
Nonperforming assets decreased $4.7 million between December 31, 1995 and
September 30, 1996. The major factor contributing to this decline was the
reclassification of a $4.2 million asset acquired through foreclosure to an
investment in real estate. The reclassification was completed in conjunction
with the purchase of an adjacent property in order to maximize value. The
combined properties generate rental income for the Bank. An analysis of the
change in the balance of nonperforming assets is presented on the following
page.
-9-
Nine Months
Ended Year Ended
September 30, December 31,
1996 1995
------------- -----------
(In Thousands)
Beginning balance..................................... $ 23,403 $ 41,440
Additions.......................................... 7,533 8,224
Collections........................................ (5,553) (12,247)
Transfers to accrual/restructured status........... (1,372) (10,424)
Provisions, charge-offs, other adjustments......... (5,337) (3,590)
----------- -----------
Ending balance........................................ $ 18,674 $ 23,403
=========== ===========
At September 30, 1996, 55.9% of nonperforming assets of the Corporation were
comprised of nonperforming assets with a carrying value of $1.0 million or more
as compared to 64.0% at December 31, 1995. The table below reflects the
stratification of such assets at September 30, 1996 and December 31, 1995.
September 30, 1996 December 31, 1995
------------------------- -----------------------
Number Number
of items Balance of items Balance
-------- ------- -------- -------
(Dollars in Thousands)
$5 million and over.............................. 1 $ 5,699 1 $ 5,950
$1 million - $4.99 million....................... 3 4,743 4 9,021
$0.5 million - $0.99 million..................... 1 600
Under $500,000................................... 162 7,632 150 8,432
--- -------- --- -------
Total nonperforming assets....................... 167 $18,674 155 $23,403
=== ======= === =======
A key element in the Corporation's strategy to manage its loan portfolios is
the timely identification of problem loans. The Corporation's loan review system
monitors the asset quality of its loans and investments in real estate
portfolios as well as facilitates the timely identification of problem loans.
This enables the Corporation to take appropriate action and, accordingly,
minimize losses.
-10-
INTEREST SENSITIVITY
The matching of maturities or repricing periods of interest-sensitive
assets and liabilities to ensure a favorable interest rate spread and mitigate
exposure to fluctuations in interest rates is the Corporation's primary focus
for achieving its asset/liability management strategies. Management regularly
reviews interest-rate sensitivity of the Corporation and adjusts sensitivity
within acceptable tolerance ranges established by management as needed. The
excess of interest-earning assets over interest-bearing liabilities that mature
within one year (interest-sensitivity gap) decreased from December 31, 1995 by
$42.8 million to $54.1 million at September 30, 1996. The decrease was due
primarily to the Corporation's effort to manage interest rate risk.
Additionally, interest-sensitive assets as a percentage of interest-sensitive
liabilities within the one year window declined to 109% at September 30, 1996
compared to 120.5% at December 31, 1995. Likewise, the one year
interest-sensitivity gap as a percentage of total assets decreased to 4.1% from
8.0% at December 31, 1995.
COMPARISON FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Results of Operations
The Corporation reported net income of $6.2 million, or $.45 per share, for
the three months ended September 30, 1996, compared to $15.0 million, or $1.02
per share, for the third quarter of 1996. Net income for the nine months ended
September 30, 1996 was $12.6 million, or $.88 per share, compared to $21.0
million, or $1.44 per share, for the same period last year.
Earnings for the three and nine months ended September 30, 1995 included a
nonrecurring after tax gain of $11.8 million, or $.80 per share, from the sale
of the deposits of the Corporation's former subsidiary, Fidelity Federal Savings
and Loan Association (the "Association"). The Corporation recorded a $1.7
million reduction in net interest income on the Corporation's investment in
reverse mortgages in the third quarter of 1995.
Total operating expenses decreased by $1.7 million and $4.1 million between
the three and nine month periods ended September 30, 1996 and 1995,
respectively. Decreases in the net costs of assets acquired through foreclosure
and compensation expense were two of the more significant factors contributing
to lower operating expenses during both periods.
Net income for the three and nine months ended September 30, 1996 included
a $3.4 million tax benefit. The Corporation recognized this benefit as a result
of the planned merger of Providential into WSFS, which is anticipated to occur
in the fourth quarter of 1996. Included in 1995 was the recognition of tax
benefits related to the utilization of the Corporation's net operating loss
carryforwards. These benefits totalled $2.0 million for the quarter and $2.8
million for the nine month period.
Net Interest Income
The tables on the following two pages, dollars expressed in thousands,
provides information concerning the balances, yields and rates on
interest-earning assets and interest-bearing liabilities during the periods
indicated.
-11-
Three Months Ended September 30,
-------------------------------------------------------------------------------
1996 1995
------------------------------------- ----------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
Assets
Interest-earning assets:
Loans (1) (2):
Real estate loans (3).............. $ 586,156 $ 13,513 9.22% $577,756 $ 13,712 9.49%
Commercial loans................... 28,473 717 9.85 24,239 748 12.08
Consumer loans .................... 212,932 4,872 9.10 183,918 4,354 9.39
---------- ----------- ----------- ----------
Total loans..................... 827,561 19,102 9.23 785,913 18,814 9.58
Mortgage-backed securities (4)........ 306,863 5,239 6.83 250,230 4,158 6.69
Loans held for sale (2)............... 2,359 43 7.29 2,286 47 8.22
Investment securities (4)............. 43,315 685 6.33 35,929 594 6.61
Other interest-earning assets (5)..... 77,954 1,283 6.58 120,933 653 2.11
---------- ----------- ----------- ----------
Total interest-earning assets...... 1,258,052 26,352 8.38 1,195,291 24,266 8.12
----------- ----------
Allowance for loan losses............. (24,469) (25,182)
Cash and due from banks............... 22,990 24,867
Other noninterest-earning assets...... 42,554 39,549
---------- -----------
Total assets....................... $1,299,127 $1,234,525
========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand................... $ 53,966 364 2.68 $ 64,285 416 2.58
Savings............................ 156,916 1,039 2.63 159,405 1,038 2.57
Time............................... 458,130 6,467 5.62 474,719 7,150 5.98
---------- ----------- ----------- ----------
Total interest-bearing deposits.. 669,012 7,870 4.68 698,409 8,604 4.89
FHLB advances......................... 306,554 4,514 5.86 269,623 4,116 6.06
Senior notes.......................... 29,100 829 11.39 29,850 850 11.39
Other borrowed funds.................. 128,713 1,842 5.72 87,662 1,351 6.61
---------- ----------- ----------- ----------
Total interest-bearing liabilities. 1,133,379 15,055 5.31 1,085,544 14,921 5.50
----------- -----------
Noninterest-bearing demand deposits... 67,571 63,299
Other noninterest-bearing liabilities. 20,321 22,026
Stockholders' equity.................. 77,856 63,656
---------- -----------
Total liabilities and stockholders'
equity........................... $1,299,127 $ 1,234,525
========== ==========
Excess of interest-earning assets over
interest-bearing liabilities....... $ 124,673 $ 109,747
========== ===========
Net interest and dividend income...... $ 11,297 $ 9,345
=========== ========
Interest rate spread.................. 3.07% 2.62%
==== ====
Net interest margin................... 3.59% 3.13%
==== ====
Net interest and dividend income to
total average assets............... 3.48% 3.03%
==== ====
(1) Nonperforming loans are included in average balance computations.
(2) Balances are reflected net of unearned income.
(3) Includes commercial mortgage loans.
(4) Includes securities available-for-sale.
(5) Includes investment in reverse mortgages.
-12-
Nine Months Ended September 30,
-------------------------------------------------------------------------------
1996 1995
------------------------------------- ----------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
Assets
Interest-earning assets:
Loans (1) (2):
Real estate loans (3).............. $586,411 $ 40,830 9.28% $ 554,618 $ 38,705 9.30%
Commercial loans................... 26,627 1,980 9.77 25,094 2,218 11.66
Consumer loans .................... 205,716 14,215 9.23 176,726 12,513 9.47
---------- ----------- ----------- ----------
Total loans..................... 818,754 57,025 9.29 756,438 53,436 9.42
Mortgage-backed securities (4)........ 285,063 14,346 6.71 255,817 12,739 6.64
Loans held for sale (2)............... 4,456 244 7.30 1,200 79 8.78
Investment securities (4)............. 33,813 1,635 6.45 55,601 2,709 6.50
Other interest-earning assets (5)..... 88,239 5,010 7.57 106,528 4,812 5.96
---------- ----------- ----------- ----------
Total interest-earning assets...... 1,230,325 78,260 8.48 1,175,584 73,775 8.37
----------- ----------
Allowance for loan losses............. (24,490) (22,811)
Cash and due from banks............... 23,331 26,141
Other noninterest-earning assets...... 41,764 47,027
---------- ----------
Total assets....................... $1,270,930 $1,225,941
========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand................... $ 54,699 1,064 2.60 $ 76,995 1,512 2.63
Savings............................ 157,220 3,049 2.59 174,452 3,272 2.51
Time............................... 455,831 19,331 5.66 487,170 21,483 5.90
---------- ----------- ----------- ----------
Total interest-bearing deposits.. 667,750 23,444 4.69 738,617 26,267 4.75
FHLB advances......................... 310,907 13,719 5.89 240,880 10,913 6.06
Senior notes.......................... 29,303 2,504 11.39 30,999 2,649 11.39
Other borrowed funds.................. 101,144 4,384 5.78 79,583 3,745 6.27
---------- ----------- ----------- ----------
Total interest-bearing liabilities. 1,109,104 44,051 5.30 1,090,079 43,574 5.33
----------- ----------
Noninterest-bearing demand deposits... 66,608 63,421
Other noninterest-bearing liabilities. 18,668 17,849
Stockholders' equity.................. 76,550 54,592
---------- ----------
Total liabilities and stockholders'
equity........................... $1,270,930 $1,225,941
========== ==========
Excess of interest-earning assets over
interest-bearing liabilities....... $ 121,221 $ 85,505
========== ==========
Net interest and dividend income...... $ 34,209 $ 30,201
========== ==========
Interest rate spread.................. 3.18% 3.04%
==== ====
Net interest margin................... 3.71% 3.43%
==== ====
Net interest and dividend income to
total average assets............... 3.59% 3.28%
==== ====
(1) Nonperforming loans are included in average balance computations.
(2) Balances are reflected net of unearned income.
(3) Includes commercial mortgage loans.
(4) Includes securities available-for-sale.
(5) Includes investment in reverse mortgages.
-13-
Net interest income grew $2.0 million, or 21%, between the third quarter of
1996 and 1995 and $4.0 million, or 13%, between the nine months ended September
30, 1996 and 1995. The net interest margin increased 46 basis points between
quarters and 28 basis points between comparable nine month periods.
A major factor contributing to the increase in net interest income was a $1.7
million income reduction on the Corporation's investment in reverse mortgages
recognized in the third quarter of 1995. This reduction reflected a yield
adjustment resulting from changes in the underlying assumptions regarding
current and future real estate values. Also contributing to the growth in net
interest income was the continued growth in the excess of interest-earning
assets over interest-bearing liabilities. The Corporation's acquisition of a
$47.5 million portfolio of discounted commercial loans and commercial mortgages
in July 1995 also favorably contributed to the growth in net interest income
year over year.
Prevailing economic conditions greatly influence net interest income and the
levels of interest-earning assets and interest-bearing liabilities. Management
anticipates interest rates to remain relatively level during 1996 as economic
growth stabilizes. All else equal, this projected interest rate environment and
current asset/liability management strategies are anticipated to favorably
impact net interest income.
-14-
Provision for Loan Losses
The following table presents a summary of the changes in the allowance for
loan losses during the periods indicated:
Nine Months Ended Year Ended
September 30, 1996 December 31,1995
------------------ ----------------
(Dollars in Thousands)
Beginning balance.............................................. $24,167 $21,700
Transfer from lease residual reserve........................... 362
Balance at acquisition for discounted commercial
mortgages................................................... 2,600
Provision for loan losses...................................... 1,285 1,403
Charge-offs:
Residential real estate..................................... 67 154
Commercial real estate (1).................................. 263 814
Commercial.................................................. 575 404
Consumer (2)................................................ 555 826
--------- --------
Total charge-offs......................................... 1,460 2,198
--------- --------
Recoveries:
Residential real estate..................................... 15 1
Commercial real estate (1).................................. 3 293
Commercial.................................................. 5 169
Consumer (2)................................................ 187 199
--------- ---------
Total recoveries.......................................... 210 662
--------- ---------
Net charge-offs........................................... 1,250 1,536
--------- --------
Ending balance................................................. $24,564 $24,167
======= =======
Net charge-offs to average gross loans outstanding, net
of unearned income (3)...................................... .20% .20%
======= =======
(1) Includes commercial mortgages and construction loans.
(2) Includes lease financings.
(3) Ratio for the nine months ended September 30, 1996 is annualized.
The provision for loan losses increased $231,000 between the nine months
ended September 30, 1996 and 1995. A charge-off of a $495,000 nonaccruing
commercial loan was recorded during the first quarter of 1996.
-15-
Other Income and Expenses
Other income decreased between the three and nine months ended September
30, 1996 and 1995. This significant decrease resulted predominantly from a
nonrecurring pretax gain of $14.2 million on the sale of the Association's
deposits in the third quarter of 1995. In addition, the corporation recognized
losses on the disposition of securities of $331,000 and $408,000 for the three
and nine months ended September 30, 1996, respectively, compared to gains of
$75,000 and $246,000 for the same periods last year. The securities losses in
1996 included a loss of $353,000 on the disposition of a fund, classified as an
investment available-for-sale, which invested in adjustable-rate government
securities.
Other expenses for the third quarter of 1996 were $1.7 million lower than
the third quarter of 1995. The majority of this decrease was attributable to
salaries and benefits which declined $834,000 and $698,000, respectively. Salary
expenses for the third quarter of 1995 included $720,000 in compensation
expenses associated with stock appreciation rights resulting from increases in
the Corporation's stock price during 1995. No such expense was recorded during
1996. The decrease in employee benefits reflects a one-time supplemental
contribution of $734,000 to the employee 401(k) plan in the third quarter of
1995 related to the sale of the Association's deposits. The net costs of
foreclosed assets, which decreased $246,000 between comparable quarters, relates
to the reduction in the level of problem assets. Partially offsetting these
declines in expenses was an increase in professional fees of $453,000. This
increase reflects additional expenses related to the Corporation's reengineering
for growth initiative. In addition, professional fees in the third quarter of
1995 included the reimbursement of legal fees which were previously expensed.
Other expenses decreased $4.1 million between the nine months ended
September 30, 1996 and 1995. Federal deposit insurance premiums, salaries, the
net costs of foreclosed assets and employee benefits were the major factors
contributing to this decline. FDIC insurance premiums which decreased $1.0
million between comparable periods, reflect the impact of a premium reduction
that became effective in June 1995. Salaries declined $1.3 million between
comparable periods and reflect expenses of $1.1 million for stock appreciation
rights as a result of the above mentioned increase in the Corporation's stock
price in 1995. The reduction in the net costs of foreclosed assets of $939,000
between the nine months ended September 1996 and 1995, was a result of the lower
level of problem assets. Employee benefits, which decreased $881,000 between
comparable nine month periods, were affected by the previously mentioned
supplementary contribution to the employee 401(k) plan in the third quarter of
1995. Other operating expenses for the nine months ended September 30, 1996 were
also adversely impacted by an increase in professional fees of $470,000 over the
comparable period in 1995. Consistent with the quarterly results, professional
fees for the first nine months of 1996 reflect additional expenses related to
the Corporation's reengineering for growth initiative. In addition, the nine
months ended September 30, 1995 were impacted by the previously discussed legal
fee reimbursement.
The federal deposit insurance premium during the third quarter of 1996
includes an estimated $53,000 special assessment which was the result of recent
legislation to recapitalize the SAIF fund. This additional assessment relates to
"OAKAR" deposits acquired by WSFS, a BIF insured institution.
Management continues to review existing operations as well as other income
opportunities in order to enhance earnings. Accordingly, other income and
expenses may fluctuate during the year.
-16-
Income Taxes
The Corporation and its subsidiaries file a consolidated income tax return
and separate state income tax returns. The Corporation recorded a net income tax
benefit of $1.7 million for the third quarter of 1996 compared to an income tax
provision of $985,000 for the third quarter of 1995. For the nine months ended
September 30, 1996, the Corporation recognized an income tax provision of $1.7
million compared to an income tax benefit of $80,000 for the nine months ended
September 30, 1995. The respective three and nine month periods in 1996 include
a $3.4 million tax benefit resulting from the planned merger of Providential
into WSFS. As a result of this merger, certain Providential tax benefits which
were previously offset by a valuation allowance have become recognizable by
WSFS, because of the ability to offset future taxable income of the Corporation
with the tax net operating loss carryforwards of Providential. Previously, these
tax net operating loss carryforwards were not recognized because it was deemed
more likely than not that Providential would not have sufficient future taxable
income to utilize the carryforwards before they expired. Included in 1995 was
the recognition of tax benefits related to the utilization of the Corporation's
net operating loss carryforwards. This benefit totalled $2.0 million and $2.8
million for the three and nine month period respectively.
The Corporation analyzes its projections of taxable income on an ongoing
basis and makes adjustments to its provision for incomes taxes accordingly.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-based Compensation" ("SFAS 123"). This
statement encourages the adoption of fair value accounting for stock-based
compensation to employees. Further, in the event that fair value accounting is
not adopted, SFAS 123 requires proforma disclosure of net income and earnings
per share as if fair value accounting had been adopted. The Company has elected
not to adopt the fair value accounting provisions of SFAS 123, and will instead
provide the required proforma disclosures, as permitted.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS 125").
This statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components approach,
after a transfer of financial assets, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred and derecognizes
financial assets it no longer controls and liabilities that have been
extinguished. The approach focuses on the assets and liabilities that exist
after the transfer. If a transfer does not meet the criteria for a sale, the
transfer is accounted for as a secured borrowing with pledge of collateral. The
Company has not yet determined the effect, if any that SFAS 125 will have on its
final statements and will adopt SFAS 125 prospectively, effective January 1,
1997, the required date of adoption.
-17-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) The following was reported under Other Events on Form 8-K filed
on November 4, 1996:
On October 28, 1996, the Registrant announced that its Board of
Directors had approved a second stock repurchase program to purchase up to 10%
of the Registrant's outstanding common stock, $.01 par value per share (the
"Common Stock"). Under the new repurchase program, stock repurchases may be
effected through open-market repurchases and privately negotiated transactions.
As previously announced, the Registrant completed a stock repurchase program
during the first half of 1996 in which 5% of the Common Stock was repurchased.
-18-
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: November 13, 1996 /s/ MARVIN N. SCHOENHALS
-------------------------------------
Marvin N. Schoenhals
Chairman, President and
Chief Executive Officer
Date: November 13, 1996 /s/ R. WILLIAM ABBOTT
-------------------------------------
R. William Abbott
Executive Vice President and
Chief Financial Officer
-19-