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 March 31, 1997
---------------------------------------------
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
838 Market Street, Wilmington, Delaware 19899
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(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 May 9, 1997:
Common Stock, par value $.01 per share 12,544,439
- -------------------------------------- ----------
(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 Months
Ended March 31, 1997 and 1996 (Unaudited).......................................... 3
Consolidated Statement of Condition as of March 31, 1997
(Unaudited) and December 31, 1996.................................................. 4
Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 1997 and 1996 (Unaudited)................................................ 5
Notes to the Consolidated Financial Statements for the Three
Months Ended March 31, 1997 and 1996 (Unaudited)................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................... 7
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders................................ 15
Item 6. Exhibits and Reports on Form 8-K................................................... 15
Signatures ................................................................................... 16
-2-
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended March 31,
--------------------------------
1997 1996
--------- ---------
(Unaudited)
(Dollars in Thousands,
Except Per Share Data)
Interest income:
Interest and fees on loans ................................................. $ 19,554 $ 19,057
Interest on mortgage-backed securities ..................................... 6,790 3,936
Interest and dividends on investment securities ............................ 538 363
Other interest income ...................................................... 1,853 2,051
--------- ---------
28,735 25,407
--------- ---------
Interest expense:
Interest on deposits ....................................................... 7,711 7,757
Interest on Federal Home Loan Bank advances ................................ 4,992 4,649
Interest on federal funds purchased and securities sold under agreements to
repurchase ............................................................... 2,936 846
Interest on senior notes ................................................... 829 846
Interest on other borrowings................................................ 82 127
--------- ---------
16,550 14,225
--------- ---------
Net interest income ........................................................ 12,185 11,182
Provision for loan losses .................................................. 584 318
--------- ---------
Net interest income after provision for loan losses ........................ 11,601 10,864
--------- ---------
Other income:
Loan servicing fee income .................................................. 770 704
Service charges on deposit accounts......................................... 1,101 671
Securities gains ........................................................... 2 1
Other income ............................................................... 557 460
--------- ---------
2,430 1,836
--------- ---------
Other expenses:
Salaries ................................................................... 3,240 3,660
Employee benefits and other personnel expenses ............................. 897 923
Equipment expense .......................................................... 312 313
Data processing expense .................................................... 804 584
Occupancy expense .......................................................... 688 636
Marketing expense .......................................................... 278 168
Professional fees........................................................... 362 243
Net costs of assets acquired through foreclosure ........................... 209 389
Other operating expenses ................................................... 1,344 1,213
--------- ---------
8,134 8,129
--------- ---------
Income before taxes ........................................................ 5,897 4,571
Income tax provision........................................................ 1,829 1,542
--------- ---------
Net income ................................................................. $ 4,068 $ 3,029
========= =========
Earnings per share ......................................................... $ .32 $ .21
Weighted average common and common equivalent shares outstanding ........... 12,828,248 14,652,046
The accompanying notes are an integral part of these financial statements.
-3-
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
March 31, December 31,
1997 1996
---- ----
(Unaudited)
(Dollars in Thousands)
ASSETS
Cash and due from banks .................................................... $ 22,485 $ 24,651
Federal funds sold and securities purchased under agreements to resell ..... 41,416 25,400
Interest-bearing deposits in other banks ................................... 11,277 5,802
Investment securities held-to-maturity ..................................... 14,859 17,680
Investment securities available-for-sale ................................... 31,271 1,253
Mortgage-backed securities held-to-maturity ................................ 343,464 313,329
Mortgage-backed securities available-for-sale .............................. 68,171 51,923
Investment in reverse mortgages, net ....................................... 35,590 35,796
Loans held for sale ........................................................ 1,327 758
Loans, net of allowance for loan losses of $24,791 at March 31, 1997 and
$24,740 at December 31, 1996.............................................. 851,325 824,125
Stock in Federal Home Loan Bank of Pittsburgh, at cost ..................... 18,266 16,135
Assets acquired through foreclosure ........................................ 6,500 6,441
Premises and equipment ..................................................... 6,133 5,966
Accrued interest and other assets .......................................... 26,035 28,376
---------- ----------
Total Assets ............................................................... $1,478,119 $1,357,635
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deposits.................................................................... 757,857 744,886
Federal funds purchased and securities sold under agreements to repurchase . 218,183 159,304
Federal Home Loan Bank advances ............................................ 365,312 322,699
Senior Notes ............................................................... 29,100 29,100
Other borrowed funds ....................................................... 7,454 7,816
Accrued expenses and other liabilities...................................... 24,404 18,042
---------- ----------
Total Liabilities........................................................... 1,402,310 1,281,847
---------- ----------
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;
issued and outstanding, none at March 31, 1997 and December 31, 1996 .....
Common stock $.01 par value, 20,000,000 shares authorized; issued and
outstanding, 14,570,248 at March 31, 1997 and 14,567,498 at December 31,
1996 ..................................................................... 146 146
Capital in excess of par value ............................................. 57,295 57,289
Net unrealized gains on securities available-for-sale, net of tax .......... 401 166
Retained earnings .......................................................... 36,931 32,863
Treasury Stock at cost, 2,040,609 shares at March 31, 1997 and 1,655,200
shares at December 31, 1996............................................... (18,964) (14,676)
---------- ----------
Total stockholders' equity.................................................. 75,809 75,788
---------- ----------
Total liabilities and stockholders' equity ................................. $1,478,119 $1,357,635
========== ==========
The accompanying notes are an integral part of these financial statements.
-4-
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
(Unaudited)
(in Thousands)
Operating activities:
Net income ............................................................. $ 4,068 $ 3,029
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses ............................................ 584 318
Depreciation, accretion and amortization ............................. 154 (201)
Increase in accrued interest receivable and other assets.............. 2,053 1,016
Origination of loans held for sale.................................... (3,708) (13,089)
Proceeds from loans held for sale..................................... 3,275 11,779
Increase in accrued interest payable and other liabilities............ 6,192 2,625
Other, net ........................................................... (517) (483)
---------- -----------
Net cash provided by operating activities................................... 12,101 4,994
---------- -----------
Investing activities:
Net (increase) decrease in interest-bearing deposits in other banks .... (5,475) 3,231
Maturities of investment securities .................................... 2,822 1,736
Purchases of investment securities held-to-maturity .................... (77)
Purchases of investment securities available-for-sale .................. (29,956)
Repayments of mortgage-backed securities held-to-maturity .............. 21,880 9,195
Repayments of mortgage-backed securities available-for-sale ............ 1,629 914
Purchases of mortgage-backed securities held-to-maturity................ (52,130) (61,441)
Purchases of mortgage-backed securities available-for-sale.............. (17,593)
Repayments of reverse mortgages ........................................ 3,999 2,980
Disbursements for reverse mortgages .................................... (3,035) (3,449)
Sales of loans.......................................................... 439 2,155
Purchases of loans ..................................................... (3,292)
Net (increase) decrease in loans ....................................... (29,693) 819
Net increase in stock of Federal Home Loan Bank of Pittsburgh........... (2,131) (201)
Sales of assets acquired through foreclosure, net....................... 1,614 1,362
Premises and equipment, net............................................. (365) (244)
---------- -----------
Net cash used for investing activities...................................... (107,995) (46,312)
---------- -----------
Financing activities:
Net increase in demand and savings deposits ........................... 8,048 8,317
Net increase in certificates of deposit and time deposits .............. 4,486 16,993
Net increase (decrease) in federal funds purchased and securities sold
under agreements of repurchase........................................ 58,879 (175)
Receipts from additional other borrowed funds .......................... 80,000 50,000
Repayments of other borrowed funds...................................... (37,387) (37,039)
Issuance of common stock ............................................... 6
Extinguishment of senior notes ......................................... (750)
Purchase treasury stock ................................................ (4,288) (2,660)
---------- -----------
Net cash provided by financing activities................................... 109,744 34,686
---------- -----------
Increase (decrease) in cash and cash equivalents ....................... 13,850 (6,632)
Cash and cash equivalents at beginning of period ....................... 50,051 62,635
---------- -----------
Cash and cash equivalents at end of period ............................. $ 63,901 $ 56,003
========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest during the year ..................................... $ 12,386 $ 11,437
Cash paid (refunded) for income taxes....................................... (2,932) 446
Loans transferred to assets acquired through foreclosure ................... 1,611 686
Net change in unrealized gains on securities available-for-sale, net of tax 235 (91)
The accompanying notes are an integral part of these financial statements.
-5-
WSFS FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
WSFS Financial Corporation (the "Corporation") is the parent of Wilmington
Savings Fund Society, FSB (the "Bank"). The consolidated financial statements
for the three months ended March 31, 1997 include the accounts of the parent
company, the Bank and its wholly-owned subsidiaries, WSFS Credit Corporation,
838 Investment Group, Inc., Community Credit Corporation and Star States
Development Company.
The consolidated statement of condition as of March 31, 1997, the
consolidated statement of operations for the three months ended March 31, 1997
and 1996 and the consolidated statement of cash flows for the three months ended
March 31, 1997 and 1996 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 period's
financial statements to conform them to the March 31, 1997 presentation. The
results of operations for the three month period ending March 31, 1997 are not
necessarily indicative of the expected results for the full year ending December
31, 1997. The accompanying unaudited financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Corporation's 1996 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.
-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 four 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 16 retail banking offices located in the Wilmington and Dover,
Delaware areas. 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 ("WCC"),
which is engaged primarily in motor vehicle leasing, and 838 Investment Group,
Inc. which markets various insurance and mutual fund products through the Bank's
branch system. Community Credit Corporation ("CCC") specializes in consumer
loans secured by first and second mortgages. An additional subsidiary, Star
States Development Company ("SSDC") is currently inactive with the exception of
one remaining parcel of land which is being marketed for sale. In November 1994,
the Bank acquired Providential Home Income Plan, Inc. ("Providential"), a San
Francisco, California-based reverse mortgage lender. The management and
operations of Providential were merged into the Bank in November 1996.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Financial Condition
Total assets grew $120.5 million during the first quarter of 1997. This
increase included a $46.4 million growth in mortgage-backed securities, a $30.0
million increase in investment securities available-for-sale and a $27.2 million
increase in loans. In addition, cash and short-term investments increased $19.3
million. The growth in mortgage-backed securities reflects the purchase of $69.8
million in high quality collateralized mortgage obligations, offset in part by
principal repayments. The growth in investment securities available-for-sale
included purchases of $20.0 million in U.S. treasury securities and $10.0
million in government agency notes. Loan growth included increases in leases,
commercial real estate loans, and consumer loans of $13.6, $7.0 and $6.8
million, respectively,
Total liabilities increased $120.5 million between December 31, 1996 and
March 31, 1997. Securities sold under agreements to repurchase and Federal Home
Loan Bank advances increased $58.9 and $42.6 million, respectively. These
additional borrowings were utilized to fund the previously described asset
growth. In addition, deposits increased $13.0 million during the three month
period to $757.9 million. Interest credited on deposits during the quarter
totaled $3.2 million for a net $9.8 million inflow of deposits.
Capital Resources
Stockholders' equity increased $21,000 between December 31, 1996 and March
31, 1997. This increase reflects net income of $4.1 million for the quarter and
a $235,000 increase due to the net unrealized gains on securities
available-for-sale. These increases to stockholders' equity were almost
completely offset by a repurchase of 385,409 shares of treasury stock for $4.3
million. At March 31, 1997, the Corporation held in its treasury 2,040,609
shares of its common stock at a cost of $19.0 million.
-7-
A table presenting the Bank's consolidated capital position relative to the
minimum regulatory requirements as of March 31, 1997 follows (dollars in
thousands):
Consolidated Regulatory
Bank Capital Requirement Excess
----------------------- ------------------------ ----------------------
Percentage Percentage Percentage
Amount of Assets Amount of Assets Amount of Assets
------- ---------- ------- ---------- ------ ----------
Tangible Capital ................... $97,678 6.61% $22,155 1.50% $75,523 5.11%
Core Capital ....................... 98,374 6.66 59,107 4.00 39,267 2.66
Tier 1 Capital ..................... 98,374 10.26 38,362 4.00 60,012 6.26
Risk-based Capital ................. 103,371 10.78 76,724 8.00 26,647 2.78
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 March 31, 1997, the Bank is
classified as a "well capitalized" institution and is in compliance with all
regulatory capital requirements. Management anticipates that the Bank will
continue to be classified as well-capitalized.
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 March 31, 1997, the Bank's liquidity ratio
was 7.0% compared to 8.0% at December 31, 1996. 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 senior notes. The interest reserve
requirement on the senior notes at March 31, 1997 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.
March 31, December 31,
1997 1996
----------- -----------
Nonaccruing loans:
Commercial .............................................. $ 413 $ 550
Consumer ................................................ 416 224
Commercial mortgages .................................... 3,584 3,243
Residential mortgages ................................... 4,125 3,790
Construction ............................................ 3,440 3,529
----------- -----------
Total nonaccruing loans ...................................... 11,978 11,336
Nonperforming investments in real estate ..................... 1,500 1,500
Assets acquired through foreclosure .......................... 6,500 6,441
----------- -----------
Total nonperforming assets ................................... $ 19,978 $ 19,277
=========== ===========
Restructured loans ........................................... $ 10,960 $ 10,967
=========== ===========
Past due loans:
Residential mortgages ................................... $ 416 $ 328
Commercial and commercial mortgages ..................... 616 832
Consumer ................................................ 388 510
----------- -----------
Total past due loans ......................................... $ 1,420 $ 1,670
=========== ===========
Ratios:
Nonaccruing loans to total loans (1) .................... 1.37% 1.34%
Allowance for loan losses to total gross loans (1)....... 2.76 2.84
Nonperforming assets to total assets .................... 1.35 1.42
(1) Excludes loans held for sale.
Nonperforming assets increased $701,000 between March 31, 1997 and December
31,1996. This increase resulted primarily from nonaccruing commercial mortgage,
and residential mortgage loans which increased $341,000 and $335,000,
respectively. On April 3, 1997, the Corporation sold its largest single asset
acquired through foreclosure which had a net book balance of $5.1 million. No
gain or loss was recorded on the sale. An analysis of the change in the balance
of nonperforming assets is presented on the following page.
-9-
Three Months
Ended Year Ended
March 31, December 31,
1997 1996
----------------- -----------
(In Thousands)
Beginning balance......................................... $ 19,277 $ 23,403
Additions ........................................... 3,264 11,010
Collections ......................................... (2,031) (7,631)
Transfers to accrual/restructured status ............ (280) (2,194)
Provisions, charge-offs, other adjustments........... (252) (5,311)
---------- -----------
Ending balance ........................................... $ 19,978 $ 19,277
========== ===========
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 which was 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-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, 1996 by
$11.4 million to $41.1 million at March 31, 1997. The decrease was due primarily
to the Corporation's continuing efforts to manage interest rate risk.
Additionally, interest-sensitive assets as a percentage of interest-sensitive
liabilities within one year window declined to 105.8% at March 31, 1997 compared
to 108.5% at December 31, 1996. Likewise, the one year interest-sensitivity gap
as a percentage of total assets decreased to 2.8% from 3.9% at December 31,
1996.
COMPARISON FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Results of Operations
The Corporation reported net income of $4.1 million, or $.32 per share, for
the first quarter of 1997 compared to $3.0 million, or $.21 per share, for the
same quarter last year. This 34% improvement in net income included a $1.0
million increase in net interest income and a $594,000 rise in noninterest
income. The growth in net interest income reflects an increase in
interest-earning assets of the Corporation. The increase in noninterest income
resulted primarily from higher service charges on deposits which reflects a
restructured fee schedule that was implemented on January 1, 1997.
Net Interest Income
The table on the following page, dollars expressed in thousands, provides
information concerning the balances, yields and rates on interest-earning assets
and interest-bearing liabilities during the periods indicated.
-10-
Three Months Ended March 31,
-----------------------------------------------------------------------------
1997 1996
------------------------------------ ---------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Assets
Interest-earning assets:
Loans (1) (2):
Real estate loans (3)............ $ 582,115 $ 13,348 9.17% $ 585,813 $ 13,730 9.38%
Commercial loans................. 28,611 707 9.88 25,330 619 9.67
Consumer loans................... 251,248 5,475 8.84 199,723 4,637 9.34
------- --------- ---------- -----------
Total loans.................... 861,974 19,530 9.06 810,866 18,986 9.37
Mortgage-backed securities (4)........ 398,098 6,790 6.82 239,487 3,936 6.57
Loans held for sale (2)............... 1,108 24 8.66 3,692 71 7.69
Investment securities (4)............. 35,670 538 6.03 22,449 363 6.47
Other interest-earning assets ........ 92,969 1,853 7.97 108,277 2,051 7.49
------------ --------- ---------- -----------
Total interest-earning assets.... 1,389,819 28,735 8.27 1,184,771 25,407 8.58
-------- -----------
Allowance for loan losses............. (24,683) (24,384)
Cash and due from banks............... 16,637 24,372
Other noninterest-earning assets...... 38,169 40,929
------------ -----------
Total assets..................... $ 1,419,942 $ 1,225,688
=========== ===========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand................. $ 57,124 369 2.62 $ 55,423 339 2.46
Savings.......................... 157,144 1,047 2.70 155,288 966 2.50
Time............................. 457,094 6,295 5.59 451,052 6,452 5.75
----------- -------- ---------- ----------
Total interest-bearing deposits 671,362 7,711 4.66 661,763 7,757 4.71
FHLB advances......................... 346,592 4,992 5.84 313,458 4,649 5.97
Senior notes.......................... 29,100 829 11.39 29,710 846 11.39
Other borrowed funds.................. 213,575 3,018 5.65 63,909 973 6.09
----------- -------- ----------- ----------
Total interest-bearing liabilities 1,260,629 16,550 5.25 1,068,840 14,225 5.32
-------- ----------
Noninterest-bearing demand deposits... 68,813 63,663
Other noninterest-bearing liabilities. 13,948 16,840
Stockholders' equity.................. 76,552 76,345
----------- -----------
Total liabilities and stockholders'
equity........................... $ 1,419,942 $ 1,225,688
=========== ===========
Excess of interest-earning assets over
interest-bearing liabilities..... $ 129,190 $ 115,931
=========== ===========
Net interest and dividend income...... $ 12,185 $ 11,182
========= ==========
Interest rate spread.................. 3.02% 3.26%
===== ====
Net interest margin................... 3.51% 3.78%
===== ====
Net interest and dividend income to
total average assets............. 3.43% 3.65%
===== ====
(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.
-11-
Net interest income increased $1.0 million, or 9%, between the three months
ended March 31, 1997 and 1996. This increase was primarily due to the growth
interest-earning assets between comparable periods.
The recent moderate changes in interest rates have not had, nor are expected
to have, a material impact on the Corporation's earnings or financial position.
In addition, a moderate increase or decrease in interest rates is not expected
to have a material affect on net interest income.
Provision for Loan Losses
The following table represents a summary of the changes in the allowance for
loan losses during the periods indicated:
Three Months Ended Year Ended
March 31, 1997 December 31, 1996
---------------------- -----------------
(Dollars in Thousands)
Beginning balance ............................................ $24,740 $24,167
Transfer from lease residual reserve ......................... 362
Provision for loan losses .................................... 584 2,015
Charge-offs:
Residential real estate ................................. 10 185
Commercial real estate (1) .............................. 184 416
Commercial............................................... 39 605
Consumer (2) ............................................ 366 880
------ -------
Total charge-offs..................................... 599 2,086
------ -------
Recoveries:
Residential real estate ................................. 15
Commercial real estate (1) .............................. 1 4
Commercial .............................................. 7 15
Consumer (2) ............................................ 58 248
------ -------
Total recoveries ..................................... 66 282
------ -------
Net charge-offs ...................................... 533 1,804
------ -------
Ending balance ............................................... $24,791 $24,740
======= =======
Net charge-offs to average gross loans outstanding, net
of unearned income (3) .................................. .25% .22%
======= =======
(1) Includes commercial mortgages and construction loans.
(2) Includes lease financings.
(3) Ratio for the three months ended March 31, 1997 is annualized.
The provision for loan losses increased by $266,000 between the three months
ended March 31, 1997 and 1996. The increase was due in part to loan growth and
management's continuing review of the loan portfolio.
-12-
Other Income
Noninterest income grew $594,000, or 32%, between the three months ended
March 31, 1997 and 1996. This increase resulted primarily from service charges
on deposit accounts which was $430,000 higher for the first quarter of 1997 when
compared to 1996. This increase reflects the implementation of a new fee
structure beginning January 1, 1997.
Other Expenses
Noninterest expense increased $5,000 between the first quarter of 1996 and
1997. Significant increases occurred, however, in data processing expense, other
expenses, professional fees and marketing expenses which increased $220,000,
$123,000, $119,000 and $110,000, respectively, between comparable periods. The
increase in data processing expense resulted from the previously announced
strategic alliance between the Corporation and its data processing management
company. Under this agreement, this data processing company will manage the
on-site "back office" functions of deposit and loan operations for the Bank. As
a result, data processing expenses are expected to increase but be offset by a
decline in employee related expenses and other expenses. The increase in
professional fees resulted predominately from legal fees associated with problem
loans. The rise in marketing expenses reflects an increase in promotional
activities of the Corporation. These increases were partially offset by salaries
and the net costs of foreclosed assets which declined $420,000 and $180,000,
respectively between comparable periods. Salaries were favorably affected by a
decrease in full time equivalent employees resulting primarily from the above
mentioned strategic alliance. The decline in the net costs foreclosed assets
resulted from lower carrying costs of such assets, a $75,000 decrease in the
provision for losses on foreclosed assets and a $54,000 increase in gains on the
sale of foreclosed assets.
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.
Income Taxes
The Corporation and its subsidiaries file a consolidated federal income tax
return and separate state income tax returns. Income taxes are accounted for in
accordance with SFAS No. 109 which requires the recording of deferred income
taxes for the tax consequences of "temporary differences". For the first quarter
of 1997 the Corporation recorded an income tax expense of $1.8 million compared
to $1.5 million for the same period in 1996. The effective tax rates for the
first quarter of 1997 and 1996 were 31.0% and 33.7%, respectively. This
reduction reflects the recognition in the financial statement of certain tax
benefits which previously had an associated valuation reserve because it was
deemed more likely than not that the benefits would not be recognized.
The Corporation analyzes its projections of taxable income on an ongoing
basis and makes adjustments to its provision for income taxes accordingly.
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ACCOUNTING DEVELOPMENTS
On March 3, 1997 the Financial Accounting Standards board issued Statement
of Financial Accounting Standard ("SFAS") No. 128, "Earnings per Share" (EPS).
This statement, which supersedes APB Opinion No. 15, simplifies the standards
for computing EPS and makes them comparable to international standards. SFAS No.
128 replaces the current "primary" and "fully diluted" earnings per share with
"basic" and "diluted" earnings per share. Basic EPS is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock, or resulted in the issuance of common
stock that then shared in the earnings of the company. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15.
SFAS No. 128 is effective for financial statements issued for the periods
ending December 31, 1997. Early application is not permitted and prior period
restatement is required. If this statement would have been in effect for these
financial statements, the reported EPS would have been as follows:
For the three months ended March 31,
------------------------------------
1997 1996
---- ----
Earnings per share:
Basic $.32 $ 21
Diluted .32 .21
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Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Corporation's Annual Stockholders' Meeting held on April 24,
1997, ("Annual Meeting") all of the nominees for director proposed by the
Corporation were elected. The votes cast for each such nominee were as follows:
For Withheld
--- --------
Michele M. Rollins 10,748,461 922,220
Claibourne D. Smith 11,578,876 91,805
David E. Hollowell 11,611,136 59,545
Additionally, at the Annual Meeting, the Stockholders' approved the
adoption of the 1997 Stock Option Plan. The votes cast with respect to this
proposal were as follows:
For Against Abstain
--------- ------- -------
10,778,435 791,515 100,731
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 January 31, 1997.
On January 29, 1997, the registrant announced that it has
substantially completed its previously announced 10% stock repurchase plan
approved by the Board of Directors on October 24, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WSFS FINANCIAL CORPORATION
Date: May 12, 1997 /s/ MARVIN N. SCHOENHALS
-----------------------------------------------
Marvin N. Schoenhals
Chairman, President and Chief Executive Officer
Date: May 12, 1997 /s/ R. WILLIAM ABBOTT
-----------------------------------------------
R. William Abbott
Executive Vice President and
Chief Financial Officer
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