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, 1998
-------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ________________________
Commission File Number 0-16668
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WSFS FINANCIAL CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2866913
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
838 Market Street, Wilmington, Delaware 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 May 8, 1998:
Common Stock, par value $.01 per share 12,524,579
- -------------------------------------- --------------------
(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, 1998 and 1997 (Unaudited).......................................... 3
Consolidated Statement of Condition as of March 31, 1998
(Unaudited) and December 31, 1997.................................................. 4
Consolidated Statement of Cash Flows for the Three Months Ended
March 31, 1998 and 1997 (Unaudited)................................................ 5
Notes to the Consolidated Financial Statements for the Three
Months Ended March 31, 1998 and 1997 (Unaudited)................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................................... 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk ........................ 14
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,
------------------------------------
1998 1997
--------- ---------
(Unaudited)
Statement of Operations:
Interest income:
Interest and fees on loans...................................................... $ 17,546 $ 17,512
Interest on mortgage-backed securities.......................................... 5,884 6,790
Interest and dividends on investment securities ................................ 1,066 538
Other interest income .......................................................... 2,566 1,853
--------- ----------
27,062 26,693
--------- ----------
Interest expense:
Interest on deposits ........................................................... 7,829 7,711
Interest on Federal Home Loan Bank advances .................................... 5,649 4,992
Interest on federal funds purchased and securities sold
under agreements to repurchase................................................ 2,935 2,936
Interest on senior notes ....................................................... 829 829
Interest on other borrowed funds................................................ 78 82
--------- ----------
17,320 16,550
--------- ----------
Net interest income ............................................................ 9,742 10,143
Provision for loan losses ...................................................... 577 309
--------- ----------
Net interest income after provision for loan losses ............................ 9,165 9,834
--------- ----------
Other income:
Loan servicing fee income ...................................................... 894 770
Rental income on operating leases, net ......................................... 2,880 1,767
Service charges on deposit accounts ............................................ 1,185 1,101
Securities gains ............................................................... 39 2
Other income ................................................................... 999 557
--------- ----------
5,997 4,197
--------- ----------
Other expenses:
Salaries and other compensation ................................................ 3,184 3,240
Employee benefits and other personnel expense .................................. 1,059 897
Equipment expense............................................................... 428 312
Data processing and operations expenses ........................................ 1,261 804
Occupancy expense............................................................... 730 688
Marketing expense............................................................... 272 278
Professional fees............................................................... 415 362
Net costs of assets acquired through foreclosure ............................... 307 209
Other operating expense ........................................................ 1,518 1,344
--------- ----------
9,174 8,134
--------- ----------
Income before taxes ............................................................ 5,988 5,897
Income tax provision ........................................................... 1,557 1,829
--------- ----------
Net income ..................................................................... $ 4,431 $ 4,068
========= ==========
Earnings per share:
Basic...................................................................... $ .36 $ .32
Diluted.................................................................... .35 .32
Other comprehensive income, net of tax:
Net income ................................................................. $ 4,431 $ 4,068
Net unrealized gains (losses) on securities available-for-sale ............. (183) 235
--------- ----------
Comprehensive income ........................................................... $ 4,248 $ 4,303
========= ==========
The accompanying notes are an integral part of these financial statements.
-3-
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
March 31, December 31,
1998 1997
--------- ------------
(Unaudited)
(Dollars in thousands)
Assets
Cash and due from banks......................................................... $ 26,271 $ 27,467
Federal funds sold and securities purchased under agreements to resell.......... 66,600 25,279
Interest-bearing deposits in other banks ....................................... 20,901 28,992
Investment securities held-to-maturity ......................................... 21,831 28,564
Investment securities available-for-sale ....................................... 20,075 50,091
Mortgage-backed securities held-to-maturity .................................... 283,979 272,900
Mortgage-backed securities available-for-sale .................................. 104,282 57,374
Investment in reverse mortgages, net ........................................... 32,281 32,109
Loans held-for-sale ............................................................ 4,103 2,183
Loans, net of allowance for loan losses of $25,013 at March 31,
1998 and $24,850 at December 31, 1997 ........................................ 726,760 762,280
Vehicles under operating leases, net ........................................... 171,789 172,115
Stock in Federal Home Loan Bank of Pittsburgh, at cost.......................... 20,500 20,252
Assets acquired through foreclosure ............................................ 3,876 3,826
Premises and equipment ......................................................... 9,516 9,001
Accrued interest and other assets .............................................. 21,787 22,784
------------ ----------
Total assets.................................................................... $ 1,534,551 $1,515,217
============ ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits....................................................................... $ 773,813 $ 766,966
Federal funds purchased and securities sold under agreements to repurchase ..... 201,929 207,699
Federal Home Loan Bank advances ................................................ 410,000 400,000
Senior notes ................................................................... 29,100 29,100
Other borrowed funds............................................................ 7,445 7,879
Accrued expenses and other liabilities ......................................... 21,172 16,814
------------ ----------
Total liabilities .............................................................. 1,443,459 1,428,458
------------ ----------
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, 1998 and December 31, 1997...............
Common stock $.01 par value, 20,000,000 shares authorized;
Issued 14,622,588 at March 31, 1998 and December 31, 1997................... 146 146
Capital in excess of par........................................................ 57,511 57,469
Net unrealized gains on securities available-for-sale, net of tax............... 196 379
Retained earnings .............................................................. 53,683 49,252
Treasury stock at cost, 2,158,109 shares at March 31, 1998 and 2,162,609 at
December 31, 1997........................................................... (20,444) (20,487)
------------ ----------
Total stockholders' equity ..................................................... 91,092 86,759
------------ ----------
Total liabilities and stockholders' equity ..................................... $ 1,534,551 $1,515,217
============ ==========
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,
---------------------------------
1998 1997
--------- --------
(in Thousands)
Operating activities:
Net income ............................................................. $ 4,431 $ 4,068
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan and lease losses .................................. 743 584
Depreciation, accretion and amortization ............................. 40 154
Increase in accrued interest receivable and other assets.............. 1,017 2,053
Origination of loans held-for-sale.................................... (12,304) (3,708)
Proceeds from loans held-for-sale..................................... 10,557 3,275
Increase in accrued interest payable and other liabilities............ 4,308 6,192
Increase in reverse mortgage capitalized interest, net ............... (1,506) (737)
Other, net ........................................................... (261) 220
--------- ----------
Net cash provided by operating activities.................................. $ 7,025 $ 12,101
--------- ----------
Investing activities:
Net (increase) decrease in interest-bearing deposits in other banks .... 8,091 (5,475)
Maturities of investment securities .................................... 26,766 2,822
Sales of investment securities available for sale ...................... 20,059
Purchases of investment securities held-to-maturity .................... (10,000)
Purchases of investment securities available-for-sale .................. (29,956)
Repayments of mortgage-backed securities held-to-maturity .............. 33,745 21,880
Repayments of mortgage-backed securities available-for-sale ............ 7,078 1,629
Purchases of mortgage-backed securities held-to-maturity................ (44,956) (52,130)
Purchases of mortgage-backed securities available-for-sale.............. (54,285) (17,593)
Repayments of reverse mortgages ........................................ 3,944 3,999
Disbursements for reverse mortgages .................................... (2,559) (3,035)
Sale of loans........................................................... 11,483 439
Purchase of loans ...................................................... (2,059)
Net decrease in loans .................................................. 24,936 35,545
Net increase in operating leases........................................ (1,828) (65,238)
Net increase in stock of Federal Home Loan Bank of Pittsburgh .......... (248) (2,131)
Sales of assets acquired through foreclosure, net....................... 3,285 1,614
Premises and equipment, net............................................. (921) (365)
--------- ----------
Net cash provided by (used for) for investing activities.................... 22,531 (107,995)
--------- ----------
Financing activities:
Net increase in demand and savings deposits ........................... 11,165 8,048
Net increase (decrease) in certificates of deposit and time deposits ... (4,827) 4,486
Receipts from FHLB borrowings .......................................... 469,000 80,000
Repayments of FHLB borrowings........................................... (459,000) (37,387)
Receipts from reverse repurchase agreements ............................ 69,837 128,183
Repayments of reverse repurchase agreements ............................ (75,606) (69,304)
Issuance of common stock ............................................... 6
Purchase treasury stock ................................................ (4,288)
--------- ----------
Net cash provided by financing activities................................... 10,569 109,744
--------- ----------
Increase in cash and cash equivalents ...................................... 40,125 13,850
Cash and cash equivalents at beginning of period ........................... 52,746 50,051
---------- ----------
Cash and cash equivalents at end of period ................................. $ 92,871 $ 63,901
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest during the year ..................................... $ 14,680 $ 12,386
Cash refunded for income taxes.............................................. (738) (2,932)
Loans transferred to assets acquired through foreclosure ................... 2,228 1,611
Net change in unrealized gains (losses) on securities available-for-sale,
net of tax................................................................ (183) 235
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, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
WSFS Financial Corporation (the Corporation) is the parent of Wilmington
Savings Fund Society, FSB (the Bank or WSFS). The consolidated financial
statements for the three months ended March 31, 1998 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, 1998, the
consolidated statement of operations for the three months ended March 31, 1998
and 1997 and the consolidated statement of cash flows for the three months
ended March 31, 1998 and 1997 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, 1998 presentation. The
results of operations for the three month period ending March 31, 1998 are not
necessarily indicative of the expected results for the full year ending
December 31, 1998. The accompanying unaudited financial statements should be
read in conjunction with the audited financial statements and notes thereto
included in the Corporation's 1997 Annual Report.
2. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," which is required to be adopted in both interim and annual financial
statements for periods ending after December 15, 1997. Accordingly, the
Corporation has changed its methodology for computing earnings per share and
restated all prior period amounts. SFAS No. 128 replaced "primary" and "fully"
diluted earnings per share with "basic" and "diluted" earnings per share.
Under the new requirements for calculating earnings per share, the dilutive
effect of stock options will be excluded from basic earnings per share but
included in the computation of diluted earnings per share.
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
Three Months Ended March 31,
--------------------------------
1998 1997
-------- --------
Numerator:
Net income.............................................................. $ 4,431 $ 4,068
======== ========
Denominator:
Denominator for basic earnings per share - weighted average shares ..... 12,463 12,661
Effect of dilutive securities:
Employee stock options ............................................... 204 167
-------- --------
Denominator for diluted earnings per share - adjusted weighted average
shares and assumed exercise of stock options.......................... 12,667 12,828
======== ========
Basic earnings per share ................................................... $ .36 $ .32
======== ========
Diluted earnings per share ................................................. $ .35 $ .32
======== ========
-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 acquired in-market. 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 17 retail banking offices located in Northern
Delaware and Southeastern Pennsylvania. 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 indirect motor vehicle leasing and financing,
and 838 Investment Group, Inc. which markets various insurance products and
securities through the Bank's branch system; and 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 expected
to be sold in the second quarter of 1998.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Financial Condition
Total assets increased $19.3 million during the first three months of
1998. Asset growth included increases of $58.0 million in mortgage-backed
securities and $41.3 million in federal funds sold and securities purchased
under agreements to resell. The increase in mortgage-backed securities reflect
the purchase of $69.0 million in collateralized mortgage obligations and $30.4
million in GNMA pass through securities, offset in part by principal
repayments. Asset growth was partially offset by decreases of $36.7 million in
investment securities and $35.5 million in net loans. The decline in
investment securities included the sale of $20.0 million in U.S. Treasury
notes, the maturity of $10.0 million in the notes issued by the Student Loan
Marketing Association and the net reduction of $5.0 million in notes issued by
the Federal Home Loan Bank. The decline in loans reflects a $21.3 million
decrease in commercial mortgages and the sale of $10.5 million in residential
mortgages.
Total liabilities increased $15.0 million between December 31, 1997 and
March 31, 1998. During the first quarter, the Corporation added $10.0 million
in FHLB advances. These borrowings were used to fund asset growth and replace
$5.8 million in reverse repurchase agreements that matured during the quarter.
In addition, deposits increased $6.8 million to $773.8 million at March 31,
1998. Interest credited to deposits totaled $3.5 million for a net deposit
growth of $3.3 million.
Capital Resources
Stockholders' equity increased $4.3 million between December 31, 1997 and
March 31, 1998. This increase reflects net income of $4.4 million for the
quarter partially offset by $183,000 decrease in the net unrealized gains on
securities available-for-sale. In addition, the Corporation reissued 4,500
shares of treasury stock to the Board of Directors as part of their annual
retainer. At March 31, 1998, the Corporation held in its treasury 2,158,109
shares of its common stock at a cost of $20.4 million.
-7-
A table presenting the Bank's consolidated capital position relative to
the minimum regulatory requirements as of March 31, 1998 (dollars in
thousands):
To be Well-capitalized
Consolidated For Capital Under Prompt Corrective
Bank Capital Adequacy Purposes Action Provisions
----------------------- ----------------------- -------------------------
Amount Percentage Amount Percentage Assets Percentage
------ ---------- ------ ---------- ------ ----------
Total Capital
(to Risk-Weighted Assets)......... $115,128 11.77% $78,260 8.00% $97,825 10.00%
Core Capital (to Adjusted
Tangible Assets) ................. 109,410 7.15 61,243 4.00 76,554 5.00
Tangible Capital (to Tangible
Assets) .......................... 108,904 7.12 22,959 1.50 N/A N/A
Tier 1 Capital (to Risk-Weighted
Assets) .......................... 109,410 11.18 N/A N/A 58,695 6.00
Under Office of Thrift Supervision (OTS) capital regulations, savings
institutions such as the Bank must maintain "tangible" capital equal to 1.5%
of adjusted total assets, "core" capital equal to 4.0% of adjusted total
assets 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, 1998 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 4.0%
minimum liquidity ratio of cash and qualified assets to net withdrawable
deposits and borrowings due within one year. At March 31, 1998, the Bank's
liquidity ratio was 8.9% compared to 10.2% at December 31, 1997. 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, 1998
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,
1998 1997
------------ -------------
Nonaccruing loans:
Commercial .............................................. $ 1,340 $ 1,216
Consumer ................................................ 228 194
Commercial mortgages .................................... 3,538 3,919
Residential mortgages ................................... 3,616 3,710
Construction ............................................ 38 38
------------ ------------
Total nonaccruing loans ...................................... 8,760 9,077
Nonperforming investments in real estate ..................... 989 989
Assets acquired through foreclosure .......................... 3,876 3,826
------------ ------------
Total nonperforming assets ................................... $ 13,625 $ 13,892
============ ============
Restructured loans ........................................... $ 4,740 $ 4,740
============ ============
Past due loans:
Residential mortgages ................................... $ 769 $ 315
Commercial and commercial mortgages ..................... 1,901 1,909
Consumer ................................................ 164 261
------------ ------------
Total past due loans ......................................... $ 2,834 $ 2,485
============ ============
Ratios:
Nonperforming loans/leases to total
loans/leases (1) ..................................... .95% .95%
Allowance for loan/lease losses to total gross
Loans/leases (1)...................................... 2.72 2.61
Nonperforming assets to total assets .................... .89 .92
Loan loss/lease loss allowance to nonaccruing
loans/leases (2)...................................... 283.80 273.06
Loan/lease and foreclosed asset allowance to total
Nonperforming assets (2) .............................. 183.29 178.50
(1) Total loans exclude loans held for sale.
(2) The applicable allowance represents general valuation allowances only.
Nonperforming assets decreased $267,000 between March 31, 1998 and
December 31,1997. This decrease resulted primarily from a $381,000 reduction
in nonaccruing commercial mortgages. 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,
1998 1997
---------------- --------------
(In Thousands)
Beginning balance......................................... $ 13,892 $ 19,277
Additions ........................................... 5,168 20,090
Collections ......................................... (4,525) (23,337)
Transfers to accrual/restructured status ............ (699) (2,122)
Provisions, charge-offs, other adjustments........... (211) (16)
----------- -----------
Ending balance ........................................... $ 13,625 $ 13,892
=========== ===========
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 RATE SENSITIVITY
The matching of maturities or repricing periods of interest
rate-sensitive assets and liabilities to ensure a favorable interest rate
spread and mitigate exposure to fluctuations in interest rates is monitored by
the Corporation in conjunction with its asset/liability management strategies.
Interest rate-sensitive assets of the Corporation include cash flows that
relate to the principal of the operating lease portfolio, which are
interest-rate sensitive. Management regularly reviews interest-rate
sensitivity of the Corporation and adjusts sensitivity within acceptable
tolerance ranges established by management as needed. At March 31, 1998,
interest-bearing liabilities exceeded interest-earning assets that mature
within one year (interest-sensitivity gap) by $13.4 million. The Corporation's
interest-sensitive assets as a percentage of interest-sensitive liabilities
within the one-year window was 98.3% at March 31, 1998 compared to 99.6% at
December 31, 1997. Likewise, the one-year sensitive gap as a percentage of
total assets was a negative .87% as compared to a negative .18% at December
31, 1997. The change is the result of the Corporation's continuing effort to
effectively manage interest rate risk and ensure a favorable interest rate
spread.
COMPARISON FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Results of Operations
The Corporation reported net income of $4.4 million for the first three
months of 1998 compared to $4.1 million for the same quarter last year. Basic
and diluted earnings per share for the first quarter of 1998 were $.36 and
$.35, respectively compared to $.32 for both basic and diluted earnings per
share for the same quarter last year. This improvement in earnings resulted
primarily from a 10% increase in net revenue (net interest income and other
income) and a reduction in the effective tax rate.
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,
----------------------------------------------------------------------------------
1998 1997
-------------------------------------- --------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate(1)
------- -------- ------- ------- -------- -------
Assets
Interest-earning assets:
Loans (2) (3):
Real estate loans (4)............ $ 524,017 $ 11,848 9.04% $ 582,115 $ 13,348 9.17%
Commercial loans................. 89,191 1,780 9.36 28,611 707 9.88
Consumer loans................... 160,139 3,876 9.82 139,641 3,433 9.97
---------- -------- --------- ---------
Total loans...................... 773,347 17,504 9.21 750,367 17,488 9.32
Mortgage-backed securities (5)........ 354,280 5,884 6.64 398,098 6,790 6.82
Loans held for sale (3)............... 1,901 42 8.84 1,108 24 8.66
Investment securities (5)............. 66,810 1,066 6.38 35,670 538 6.03
Other interest-earning assets ........ 98,506 2,566 10.42 92,969 1,853 7.97
---------- -------- --------- ---------
Total interest-earning assets.... 1,294,844 27,062 8.46 1,278,212 26,693 8.35
-------- ---------
Allowance for loan losses............. (24,845) (23,673)
Cash and due from banks............... 21,565 16,637
Vehicles under operating lease,
net................................. 173,468 110,597
Other noninterest-earning assets...... 32,978 38,169
---------- ----------
Total assets..................... $1,498,010 $1,419,942
========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand................. $ 59,695 381 2.59 $ 57,124 369 2.62
Savings.......................... 172,411 1,304 3.07 157,144 1,047 2.70
Time............................. 442,899 6,144 5.63 457,094 6,295 5.59
---------- -------- ---------- ---------
Total interest-bearing deposits 675,005 7,829 4.70 671,362 7,711 4.66
FHLB advances......................... 403,055 5,649 5.68 346,592 4,992 5.84
Senior notes.......................... 29,100 829 11.39 29,100 829 11.39
Other borrowed funds.................. 206,323 3,013 5.84 213,575 3,018 5.65
---------- -------- ---------- ---------
Total interest-bearing liabilities 1,313,483 17,320 5.27 1,260,629 16,550 5.25
-------- ---------
Noninterest-bearing demand deposits... 77,764 68,813
Other noninterest-bearing liabilities. 16,650 13,948
Stockholders' equity.................. 90,113 76,552
---------- ----------
Total liabilities and stockholders'
equity......................... $1,498,010 $1,419,942
========== ==========
Excess of interest-earning assets over
interest-bearing liabilities..... $ (18,639) $ 17,583
========== ==========
Net interest and dividend income...... $ 9,742 $ 10,143
========= ========
Interest rate spread.................. 3.19% 3.10%
======== =====
Net interest margin................... 3.10% 3.17%
======== =====
Net interest and dividend income to
total average assets............. 2.68% 2.86%
======== =====
(1) Weighted average yields have been computed on a tax-equivalent basis.
(2) Nonperforming loans are included in average balance computations.
(3) Balances are reflected net of unearned income.
(4) Includes commercial mortgage loans.
(5) Includes securities available-for-sale.
-11-
Net interest income decreased $401,000 between the three months ended
March 31, 1998 and 1997. This decrease resulted from the growth in the
operating lease portfolio between comparable periods. The income from these
leases, which increased $1.1 million between periods, is reported in other
income and not interest income while the costs of funding these assets is
included in interest expense, therefore depressing the net interest margin.
The interest rate margin decreased between both periods as a result of
additional wholesale investment growth strategies in the first quarter of
1998, the growth in operating leases as well as the impact of a $35.5 million
loan to refinance an employee stock ownership plan (ESOP) note of the Company,
on pre-tax income.
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, 1998 December 31, 1997
---------------------- -----------------
(Dollars in Thousands)
Beginning balance ............................................ $24,850 $24,241
Provision for loan losses .................................... 577 1,533
Reclass to allowance for vehicles under operating lease....... (259)
Reclass from allowance for ORE losses......................... 848
Charge-offs:
Residential real estate ................................. 52 193
Commercial real estate (1) .............................. 53 520
Commercial............................................... 15 169
Consumer ................................................ 408 859
------- -------
Total charge-offs..................................... 528 1,741
------- -------
Recoveries:
Residential real estate ................................. 2
Commercial real estate (1) .............................. 80 95
Commercial .............................................. 12 22
Consumer ................................................ 22 109
------- -------
Total charge-offs .................................... 114 228
------- -------
Net charge-offs .............................................. 414 1,513
------- -------
Ending balance ............................................... $25,013 $24,850
======= =======
Net charge-offs to average gross loans outstanding, net
of unearned income (2)................................... .21% .19%
======= =======
(1) Includes commercial mortgages and construction loans.
Theoretically, there are none of these left for periods recently.
(2) Ratio for the three months ended March 31, 1998 is annualized.
The provision for loan losses increased by $268,000 between the three
months ended March 31, 1997 and 1998. The increase was due in part to
management's continuing review of the loan portfolio.
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Other Income
Noninterest income grew $1.8 million, or 43%, between the three months
ended March 31, 1997 and 1998. This increase resulted primarily in from net
rental income on operating leases which increased $1.1 million between
comparable quarters. This increase reflects strong growth in the operating
lease portfolio.
Other Expenses
Noninterest expenses increased $1.0 million between the quarters ending
March 31, 1997 and 1998. This increase reflects the Corporations commitment to
invest in its profitable business lines and improve its technological
capabilities. These commitments include increasing the Bank's presence in
Southeastern Pennsylvania beginning in March 1998, expanding the Bank's ATM
network and introducing a new state of the art PC-based cash management
product for its business clients.
The comparability between periods of certain expenses line items has been
affected by a five year strategic technology alliance entered into on March 1,
1997, between WSFS and ALLTEL, the company which has been managing WSFS data
processing for nine years. This agreement calls for ALLTEL to employ certain
on-site back office personnel, as well as manage deposit and loan operation
functions. As a result, certain costs, most of which previously would have
been classified as salaries, are now classified as data processing and
operating expenses. Consequently, data processing expenses and operating
expenses increased $457,000 between comparable periods.
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 1998 the Corporation recorded an income tax expense of $1.6
million compared to $1.8 million for the same period in 1997. The effective
tax rates for the first quarter of 1998 and 1997 were 26.0% and 31.0%,
respectively. Increased tax benefits from the acquisition and subsequent
merger of Providential Home Income Plan, Inc., a San Francisco, California
based reverse mortgage lender, into the Bank and the 50% interest income
exclusion of an ESOP loan made in the second quarter of 1997, contributed to
this reduction in effective rates between periods.
The Corporation analyzes its projections of taxable income on an ongoing
basis and makes adjustments to its provision for income taxes accordingly.
-13-
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises primarily from interest rate risk
inherent in its lending and deposit taking activities. To that end, management
actively monitors and manages its interest rate risk exposure. One measure,
required to be performed by OTS-regulated institutions, is the test specified
by OTS Thrift Bulletin No. 13, "Interest Rate Risk Management." This test
measures the impact on net interest income and on net portfolio value of an
immediate change in interest rates in 100 basis point increments. Net
portfolio value is defined as the net present value of assets, liabilities,
and off-balance sheet contracts. The chart below is the estimated impacts of
immediate changes in interest rates at the specified levels at March 31, 1998,
calculated in compliance with Thrift Bulletin No. 13:
Change in Change in Change in
Interest Rate Net Interest Net Portfolio
(Basis Points) Income (1) Value (2)
-------------- ------------ -------------
+400 6% -24%
+300 5 -19
+200 3 -13
+100 2 - 7
-100 -2 7
-200 -4 16
-300 -6 25
-400 -9 35
(1) This column represents the percentage difference between estimated net
interest income for the succeeding 12 months in a stable interest rate
environment and net interest income as projected by the various rate scenarios.
(2) This column represents the percentage difference between estimated net
portfolio value of the Company in a stable interest rate environment and the net
portfolio value as projected in the various rate scenarios.
The Company's primary objective in managing interest rate risk is to
minimize the adverse impact of changes in interest rates on the Company's net
interest income and capital, while structuring the Company's asset/liability
structure to obtain the maximum yield/cost spread on that structure. The
Company relies primarily on its asset/liability structure to control interest
rate risk.
-14-
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 23,
1998, ("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
---------- --------
Thomas P. Preston 11,013,114 30,079
Marvin N. Schoenhals 11,010,758 32,435
R. Ted Weschler 11,010,884 32,309
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 April 28, 1998.
On April 26, 1998, the registrant announced that it will resume
paying quarterly cash dividends to holders of common stock. The Board of
Directors declared a regular quarterly cash dividend of $.03 per share of
common stock. This dividend is payable on May 20, 1998 to common
stockholders of record on May 6, 1998.
-15-
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/ MARK A. TURNER
-----------------------------------------------
Mark A. Turner
Senior Vice President and
Chief Financial Officer
-16-