<PAGE>
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, 1995
---------------------------------------------
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
----------------------------------------------------
(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 10, 1995:
Common Stock, par value $.01 per share 14,509,298
- -------------------------------------- ---------------------
(Title of Class) (Shares Outstanding)
<PAGE>
WSFS FINANCIAL CORPORATION
FORM 10-Q
INDEX
PART I. Financial Information
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statement of Operations for the Three and Nine Months
Ended September 30, 1995 and 1994 (Unaudited) ....................... 3
Consolidated Statement of Condition as of September 30, 1995
(Unaudited) and December 31, 1994 ................................... 4
Consolidated Statement of Cash Flows for the Nine Months Ended
September 30, 1995 and 1994 (Unaudited) ............................. 5
Notes to the Consolidated Financial Statements for the Three and Nine
Months Ended September 30, 1995 and 1994 (Unaudited) ................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................... 8
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K .................................... 20
Signatures ................................................................... 21
</TABLE>
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<PAGE>
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------------
1995 1994 1995 1994
------ ------ ------ ------
(Unaudited)
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans............................ $ 18,861 $ 14,969 $ 53,515 $ 42,918
Interest on mortgage-backed securities................ 4,158 3,887 12,739 8,883
Interest and dividends on investment securities....... 594 829 2,709 2,269
Other interest income................................. 653 1,240 4,812 4,005
------------ ------------ ------------- ------------
24,266 20,925 73,775 58,075
------------ ------------ ------------- ------------
Interest expense:
Interest on deposits.................................. 8,604 6,937 26,267 19,830
Interest on Federal Home Loan Bank advances........... 4,116 2,823 10,913 8,398
Interest on Senior Notes.............................. 850 912 2,649 2,728
Interest on federal funds purchased and securities
sold under agreements to repurchase................. 1,205 449 3,278 453
Interest on other borrowed funds...................... 146 169 467 504
------------ ------------ ------------- ------------
14,921 11,290 43,574 31,913
------------ ------------ ------------- ------------
Net interest income...................................... 9,345 9,635 30,201 26,162
Provision for loan losses................................ 47 471 1,054 1,348
------------ ------------ ------------- ------------
Net interest income after provision for loan losses...... 9,298 9,164 29,147 24,814
------------ ------------ ------------- ------------
Other income:
Gain on sale of deposits.............................. 14,247 14,247
Loan servicing fee income............................. 722 643 2,193 1,785
Service charges on deposit accounts................... 716 655 2,107 1,812
Securities gains (losses)............................. 75 (6) 246 198
Other income.......................................... 770 472 1,700 1,551
------------ ------------ ------------- ------------
16,530 1,764 20,493 5,346
------------ ------------ ------------- ------------
Other expenses:
Salaries.............................................. 4,368 3,221 11,937 8,982
Employee benefits and other personnel expense......... 1,614 782 3,560 2,437
Equipment expense..................................... 339 524 965 1,610
Data processing expense............................... 577 515 1,690 1,530
Occupancy expense..................................... 621 570 1,840 1,801
Marketing expense..................................... 276 387 884 1,088
Professional fees..................................... (2) 288 670 998
Federal deposit insurance premium..................... 42 568 1,041 1,761
Net costs of assets acquired through foreclosure...... 523 514 2,043 1,208
Other operating expenses.............................. 1,460 1,307 4,000 3,881
------------ ------------ ------------- ------------
9,818 8,676 28,630 25,296
------------ ------------ ------------- ------------
Income before taxes...................................... 16,010 2,252 21,010 4,864
Income tax provision (benefit)........................... 985 (100) (80) (283)
------------ ------------ ------------- ------------
Net income............................................... $ 15,025 $ 2,352 $ 21,090 $ 5,147
============ ============ ============= ============
Earnings per share....................................... $ 1.02 $ .16 $ 1.44 $ .35
Weighted average shares outstanding...................... 14,691,473 14,608,868 14,659,508 14,609,643
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
(Dollars in Thousands)
Assets
<S> <C> <C>
Cash and due from banks........................................................ $ 29,190 $ 31,876
Federal funds sold and securities purchased under agreements to resell......... 22,500 23,098
Interest-bearing deposits in other banks....................................... 6,630 9,837
Investment securities held-to-maturity......................................... 34,219 35,152
Investment securities available-for-sale...................................... 6,246 28,992
Mortgage-backed securities held-to-maturity.................................... 227,292 244,165
Mortgage-backed securities available-for-sale.................................. 18,159 18,583
Investment in reverse mortgages, net........................................... 35,263 32,172
Loans held for sale............................................................ 3,068 253
Loans, net of allowance for loan losses of $ 24,488 at September 30, 1995
and $21,700 at December 31, 1994............................................. 775,405 710,523
Stock in Federal Home Loan Bank of Pittsburgh, at cost......................... 15,392 11,314
Assets acquired through foreclosure............................................ 12,729 18,936
Premises and equipment......................................................... 6,447 8,440
Accrued interest and other assets.............................................. 23,497 22,345
---------- ----------
Total assets................................................................... $1,216,037 $1,195,686
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits....................................................................... $ 702,871 $ 809,707
Federal funds purchased and securities sold under agreements to repurchase..... 71,958 56,708
Federal Home Loan Bank advances................................................ 306,249 226,284
Senior Notes................................................................... 29,850 32,000
Other borrowed funds........................................................... 8,971 12,252
Accrued expenses and other liabilities......................................... 28,502 13,461
---------- ----------
Total liabilities.............................................................. 1,148,401 1,150,412
---------- ----------
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 and
outstanding, 14,509,298 at September 30, 1995 and 14,507,098 at
December 31, 1994............................................................ 145 145
Capital in excess of par value................................................. 57,135 57,131
Net unrealized losses on securities available-for-sale......................... (233) (1,501)
Retained earnings (accumulated deficit)........................................ 10,589 (10,501)
---------- ----------
Total stockholders' equity..................................................... 67,636 45,274
---------- ----------
Total liabilities and stockholders' equity..................................... $1,216,037 $1,195,686
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1995 1994
------- ------
(Unaudited)
(In Thousands)
<S> <C> <C>
Operating activities:
Net income................................................................. $ 21,090 $ 5,147
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses............................................... 1,054 1,348
Provision for losses on assets acquired through foreclosure............. 956 (50)
Depreciation, accretion and amortization................................ (1,083) 1,165
Increase in accrued interest receivable and other assets................ (3,193) (3,121)
Origination of loans held for sale...................................... (18,274) (8,986)
Proceeds from sales of loans held for sale.............................. 15,534 10,848
Gain on sale of deposits................................................ (16,553)
Loss on property and equipment liquidation related to from deposit sale. 2,312
Increase in accrued interest payable on deposits and other liabilities.. 14,073 6,605
Other, net.............................................................. 43 (1,177)
---------- ---------
Net cash provided by operating activities..................................... 15,959 11,779
---------- ---------
Investing activities:
Net decrease in interest-bearing deposits in other banks................... 3,207 14,781
Maturities of investment securities held-to-maturity....................... 929 4,445
Sales of investment securities available-for-sale.......................... 63,493 34,628
Purchases of investment securities held-to-maturity........................ (39,973) (10,000)
Purchases of investment securities available-for-sale...................... (29,971)
Repayments of mortgage-backed securities held-to-maturity.................. 16,509 32,130
Repayments of mortgage-backed securities available-for-sale................ 1,496 1,343
Purchases of mortgage-backed securities held-to-maturity................... (260,105)
Repayments of reverse mortgages............................................ 9,422 4,254
Disbursements for reverse mortgages........................................ (11,641) (4,384)
Sales of loans............................................................. 6,196 611
Purchases of loans......................................................... (48,856) (5,846)
Net increase in loans...................................................... (22,306) (15,334)
Net increase in stock of Federal Home Loan Bank of Pittsburgh.............. (4,078) (3,936)
Sales of assets acquired through foreclosure............................... 6,639 8,360
Disbursements for assets acquired through foreclosure...................... (201) (2,935)
Other, net................................................................. 636 (1,120)
---------- ---------
Net cash used for investing activities........................................ (18,528) (233,079)
---------- ---------
Financing activities:
Net decrease in demand and savings deposits................................ (22,265) (9,798)
Net increase in certificates of deposit and time deposits.................. 110,534 270
Sale of deposits, net...................................................... (180,758)
Net increase in federal funds purchased and securities sold under agreements
to repurchase............................................................. 15,250 80,083
Receipts from additional other borrowed funds.............................. 120,000 230,000
Repayments of other borrowed funds......................................... (41,330) (131,107)
Repurchase of Senior Notes................................................. (2,150)
Issuance of common stock resulting from options exercised.................. 4 13
---------- ---------
Net cash provided by (used for) financing activities.......................... (715) 169,461
---------- ---------
Decrease in cash and cash equivalents......................................... (3,284) (51,839)
Cash and cash equivalents at beginning of period.............................. 54,974 109,898
---------- ---------
Cash and cash equivalents at end of period.................................... $ 51,690 $ 58,059
========== =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest.................................................................. $ 31,263 $ 23,624
Income taxes, net......................................................... 2,322 644
Loans transferred to assets acquired through foreclosure, net.............. 5,336 11,885
Net unrealized gains (losses) on securities available-for-sale, net of tax. 1,268 (1,088)
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
WSFS FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995
(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, 1995 include the
accounts of the parent company, the Bank and its wholly owned subsidiaries, Star
States Development Company, WSFS Credit Corporation, 838 Investment Group,
Inc.(formerly Star States Financial Services, Inc.), Community Credit
Corporation, Providential Home Income Plan, Inc. and Star States Pennsylvania
Corporation (SSPA). SSPA is the parent company of Fidelity Federal Savings and
Loan Association, a federally-chartered stock savings and loan association.
The consolidated statement of condition as of September 30, 1995, the
consolidated statement of operations for the three and nine months ended
September 30, 1995 and the consolidated statement of cash flows for the nine
months ended September 30, 1995 and 1994 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 September 30, 1995
presentation. The accompanying unaudited financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Corporation's 1994 Annual Report.
2. ACQUISITION OR DISPOSITION OF ASSETS
On July 28, 1995, the Corporation's wholly-owned subsidiary, Fidelity Federal
Savings and Loan 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 premium paid of the deposit
base was 8.52%, subject to certain adjustments at closing. The Corporation
reported a gain of approximately $12.5 million, net of taxes, or $.85 per
outstanding share from this sale.
The Corporation funded the $177.6 million cash outflow through long-term
borrowings of $70.0 million and $63.8 million in brokered CD's. The additional
funding was made with short-term borrowings and available liquidity. The average
cost of these borrowings was 6.27% per annum compared to 5.11% for the deposit
liabilities sold. This transaction is not expected to materially affect results
of operations as the increased funding costs are projected to be substantially
offset by reductions in operating expenses. Total assets decreased by
approximately $45.0 million as a result of this transaction. This transaction
allows the Corporation to focus on its primary market area while enhancing
capital.
3. 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. These computations include the retroactive recognition of an
appropriate equivalent change in the Corporation's capital structure for all
periods presented.
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<PAGE>
4. ACCOUNTING FOR IMPAIRED LOANS
Effective January 1, 1995, the Corporation adopted Statement of Accounting
Standards (SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan" and
its amendment, SFAS No. 118. This statement requires that impaired loans be
measured based on the present value of the expected future discounted cash
flows, the market price of the loan or the fair value of the underlying
collateral if the loan is collateral dependent. Impaired loans as defined in
SFAS No. 114 include loans within the Corporation's commercial, commercial
mortgage and commercial construction portfolios.
The adoption of SFAS No. 114 had no effect on the results of operations or the
financial position of the Corporation since a portion of the allowance for
credit losses was allocated to the allowance for impairment losses.
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<PAGE>
WSFS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
WSFS Financial Corporation (the "Corporation") is a multiple 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. In addition, Star States Pennsylvania
Corporation, a subsidiary of the Bank, is the holding company for Fidelity
Federal Savings and Loan Association (the "Association") which conducts limited
retail operations in Pennsylvania. On July 28, 1995, the Association completed
the sale of the deposits of its four branches in the northeast section of
Philadelphia, Pennsylvania. The acquiring institution 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. In November 1995, the Bank
entered into an agreement to purchase approximately $14.8 million of deposits
from a branch located in Dover, Delaware. The Bank expects to complete the
transaction early in 1996.
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 13 retail banking
offices located in the greater Wilmington, 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.
(formerly Star States Financial Services, Inc.) which markets various insurance
products and mutual funds through the Bank's branch system. An additional Bank
subsidiary, Star States Development Company, is currently phasing down its real
estate investments and developments. In June 1994, the Bank formed a consumer
finance subsidiary, Community Credit Corporation ("CCC") which opened its first
office in August 1994. 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.
During 1995, the Corporation has reported higher earnings and continued
reductions in nonperforming assets. These operating improvements are the results
of earnings and operational strategies the Corporation has undertaken over the
last several years. For these reasons, as well as the significant changes and
ongoing consolidation in the financial services industry, the Corporation's
Board of Directors selected a financial advisor to assist the Board in
considering strategic alternatives, including a possible sale of the
Corporation. The objective of this committee is to review various courses of
action for the Corporation for maximizing shareholder value.
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<PAGE>
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Financial Condition
Total consolidated assets grew $20.4 million during the first nine months of
1995. This increase occurred predominantly in loans and was offset in part by
reductions in investment and mortgage-back securities. The growth in loans was
primarily attributable to the Bank's purchase of a $47.5 million portfolio of
discounted commercial loans and commercial mortgages in July 1995. Repayment and
sales activity were the significant factors contributing to the reduction in
mortgage-backed and investment securities which totalled $17.3 million and $23.7
million, respectively.
Although total liabilities increased only $2.0 million between September 30,
1995 and December 31, 1994, there was significant activity between liability
categories during the period. Deposits decreased $106.8 million since December
31, 1994. This reduction was primarily due to the sale of the Association's
deposits which totalled $197.3 million. This reduction was offset in part with
the addition of $63.8 million in brokered certificates of deposit and $8.1
million in deposits from a branch acquisition in the first quarter of 1995.
Interest credited to deposits of $10.7 million as well as $7.9 million of other
growth also offset this reduction. Federal Home Loan Bank ("FHLB") advances and
securities sold under agreements to repurchase increased a combined total of
$95.2 million since December 31, 1994. This increase was the result of funding
required for the sale of the Association's deposits as well as the purchase of
the commercial loan and commercial mortgage portfolio noted previously.
Capital Resources
Stockholders' equity increased $22.4 million between December 31, 1994 and
September 30, 1995. This increase was primarily the result of net income for the
first nine months of 1995 as well as a reduction in net unrealized losses of
$1.3 million, net of taxes, on investment and mortgage-backed securities
classified as available-for-sale.
A table presenting the Bank's consolidated capital position relative to the
minimum regulatory requirements as of September 30, 1995 follows (dollars in
thousands):
<TABLE>
<CAPTION>
Consolidated Regulatory
Bank Capital Requirement Excess
-------------------- -------------------- --------------------
Percent of Percent of Percent of
Amount Assets Amount Assets Amount Assets
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital.......................... $88,929 7.32% $18,230 1.50% $70,699 5.82%
Core Capital.............................. 88,929 7.32 48,612 4.00 40,317 3.32
Tier 1 Capital............................ 88,929 10.29 34,561 4.00 54,368 6.29
Risk-based Capital........................ 99,409 11.51 69,123 8.00 30,286 3.51
</TABLE>
Under Office of Thrift Supervision (OTS) capital regulations, savings
institutions such as the Bank and Association 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.
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<PAGE>
At September 30, 1995 the Bank is classified as a "well capitalized" institution
and is in compliance with all regulatory capital requirements. The Association
is also in compliance with all regulatory capital requirements.
The OTS issued a regulation which incorporates an interest rate risk (IRR)
component into the risk- based capital calculation. Implementation of this
regulation has been postponed until further notice. The IRR component is based
on the lowest calculated interest-rate risk capital component for the preceding
three quarters. The institution's actual measured IRR is expressed as the change
that occurs in its net portfolio value (NPV) as a result of a hypothetical 200
basis point increase or decrease in interest rates, subject to an established
floor. Based on the current composition of the Bank's portfolio at September 30,
1995 and the proposed regulation, management believes that no additional capital
would be required.
Liquidity
The OTS requires institutions, such as the Bank and the Association, 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, 1995,
the Bank's liquidity ratio was 6.4% compared to 6.2% at December 31, 1994. The
Association's liquidity ratio exceeded 100% at September 30, 1995 as a result of
the deposit sale previously noted. Additionally, the Corporation is required to
maintain a reserve of 100% of the aggregate interest expense for 12 full
calendar months on the $29.9 million of 11% Senior Notes. The interest reserve
requirement on the Senior Notes at September 30, 1995 was approximately $3.3
million.
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<PAGE>
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,
1995 1994
------------- ------------
(Dollars in Thousands)
Nonaccruing loans:
Commercial .................................... $ 570 $ 1,485
Consumer ...................................... 583 593
Commercial mortgages .......................... 2,217 9,886
Residential mortgages ......................... 3,287 4,620
Construction .................................. 3,677 3,182
------- -------
Total nonaccruing loans .......................... 10,334 19,766
Nonperforming investments in real estate ......... 1,252 2,738
Assets acquired through foreclosure .............. 12,729 18,936
------- -------
Total nonperforming assets ....................... $24,315 $41,440
======= =======
Restructured loans ............................... $13,712 $13,775
======= =======
Past due loans:
Residential mortgages ......................... $ 329 $ 152
Commercial and commercial mortgages ........... 371 240
Consumer ...................................... 158 102
------- -------
Total past due loans ............................. $ 858 $ 494
======= =======
Ratios:
Nonaccruing loans to total loans (1) .......... 1.29% 2.70%
Allowance for loan losses to total
gross loans (1) ............................. 2.98 2.89
Nonperforming assets to total assets .......... 2.00 3.47
(1) Excludes loans held for sale.
Nonperforming assets decreased $17.1 million between September 30, 1995 and
December 31, 1994. Nonaccruing loan reductions of $7.7 million and $1.3 million
in the commercial mortgage and residential mortgage categories, respectively, a
$1.5 million decrease in nonperforming investments in real estate and a $6.2
million decrease in assets acquired through foreclosure comprised the majority
of the reduction in total nonperforming assets. During the first quarter, a $4.4
million nonaccruing commercial mortgage loan was returned to accrual status and
a $2.8 million nonaccruing commercial mortgage loan was transferred to assets
acquired through foreclosure after a $744,000 partial charge-off was recorded to
the allowance for loan losses. This property was subsequently sold during the
third quarter of 1995. The decrease in residential mortgages was the result of
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<PAGE>
$1.7 million of loans returning to accrual status and the transfer of other
loans to assets acquired through foreclosure. As of September 30,1995, the
Corporation has significantly reduced the level of assets acquired through
foreclosure through sales and collections of properties which totalled $10.5
million, offset in part by additions of $4.8 million. The reduction in the
nonaccruing loans to total loans ratio was due to the reductions noted above as
well as charge-offs and collection activity. Consequently, the nonperforming
assets to total assets ratio also decreased significantly. An analysis of the
change in the balance of nonperforming assets is presented below.
Nine Months
Ended Year Ended
September 30, December 31,
1995 1994
------------- ------------
(In Thousands)
Beginning balance ........................... $ 41,440 $ 51,082
Additions ................................ 5,528 16,732
Collections .............................. (10,559) (17,884)
Transfers to accrual/restructured status . (9,728) (3,151)
Provisions, charge-offs, other adjustments (2,366) (5,339)
-------- --------
Ending balance .............................. $ 24,315 $ 41,440
======== ========
At September 30, 1995, 69.6% of nonperforming assets of the Corporation were
comprised of nonperforming assets with a carrying value of $1.0 million or more
as compared to 70.9% at December 31, 1994. The table below reflects the
stratification of such assets at September 30, 1995 and December 31, 1994.
September 30, 1995 December 31, 1994
------------------ -----------------
Number Number
of items Balance of items Balance
-------- ------- -------- -------
(Dollars in Thousands)
$5 million and over ................ 1 $ 6,700 1 $ 6,700
$1 million - $4.99 million ......... 5 10,223 10 22,695
$0.5 million - $0.99 million ....... 1 503 2 1,437
Under $500,000 ..................... 148 6,889 198 10,608
--- ------- --- -------
Total nonperforming assets ......... 155 $24,315 211 $41,440
=== ======= === =======
The reductions in the "$1 million - $4.99 million" and "$0.5 million - $0.99
million" categories were due exclusively to the $4.4 million commercial mortgage
returned to accrual status and sales of foreclosed assets previously discussed.
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. In general, this system utilizes guidelines established by
federal regulation; however, there can be no assurance that the
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<PAGE>
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 utilizes a variety of
tactics, as needed, to adjust that sensitivity within acceptable tolerance
ranges established by management. The excess of interest-earning assets over
interest-bearing liabilities that mature within one year (interest-sensitivity
gap) increased by $83.5 million to $150.4 million at September 30, 1995. This
increase was primarily the result of the sale of the Association's deposits.
These deposits were replaced in part with long-term borrowings of $70.0 million
and $63.8 million of brokered CD's. Consequently, interest- sensitive assets as
a percentage of interest-sensitive liabilities within the "one-year window"
increased to 133.2% at September 30, 1995 compared to 112.5% at December 31,
1994. Likewise, the one-year interest sensitivity gap as a percentage of total
assets increased to 12.4% at September 30, 1995 from 5.6% at December 31, 1994.
COMPARISON FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Results of Operations
The Corporation reported net income of $15.0 million for the quarter ended
September 30, 1995 compared to net income of $2.4 million for the same quarter
in 1994. Earnings per share were $1.02 for the third quarter of 1995 compared to
$.16 for the same period last year.
Earnings for the first nine months of 1995 were $21.1 million as compared
to $5.1 million for the same period in 1994. Earnings per share were $1.44 and
$.35 for the nine months ended September 30, 1995 and 1994, respectively.
The significant increase in both quarterly and year-to-date earnings was
due to the sale of the deposits of the Association. This resulted in a gain of
$14.2 million before taxes and is included in other income. The net gain on sale
after taxes and a related one-time expense of $734,000 for a supplemental
contribution to the Corporation's 401(k) Plan was approximately $11.8 million.
Net interest income was unfavorably impacted by a $1.7 million reduction for an
adjustment to the yield on the Corporation's investment in reverse mortgages as
well as the affect of the deposit sale. Net interest income was favorably
impacted by the acquisition of a $47.5 million portfolio of discounted
commercial loans and commercial mortgages in July 1995. Operating expenses
increased both quarterly and year-to-date as a result of the supplemental
contribution to the 401(k) Plan noted above and increased compensation expense
associated with stock appreciation rights, resulting from increases in the
Corporation's stock price. These items were offset in part by a reduction in
FDIC premiums.
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.
-13-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30,
----------------------------------------------------------------------------
1995 1994
----------------------------------- ------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans (1) (2):
Real estate loans (3).............. $577,756 $ 13,712 9.49% $ 524,843 $ 10,744 8.19%
Commercial loans................... 24,239 748 12.08 24,221 518 8.37
Consumer loans .................... 183,918 4,354 9.39 159,460 3,695 9.19
---------- ---------- ---------- -----------
Total loans..................... 785,913 18,814 9.58 708,524 14,957 8.44
Mortgage-backed securities (4)........ 250,230 4,158 6.65 241,998 3,887 6.42
Loans held for sale (2)............... 2,286 47 8.22 410 12 11.71
Investment securities (4)............. 35,929 594 6.61 56,156 829 5.90
Other interest-earning assets (5)..... 120,933 653 2.11 68,627 1,240 7.07
---------- ---------- ---------- -----------
Total interest-earning assets...... 1,195,291 24,266 8.12 1,075,715 20,925 7.78
---------- -----------
Allowance for loan losses............. (25,182) (21,616)
Cash and due from banks............... 24,867 26,042
Other noninterest-earning assets...... 39,549 49,252
---------- ----------
Total assets....................... $1,234,525 $1,129,393
========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand................... $ 64,285 416 2.58 $ 91,549 508 2.20
Savings............................ 159,405 1,038 2.57 200,294 1,119 2.22
Time............................... 474,719 7,150 5.98 441,552 5,310 4.77
---------- ---------- ---------- -----------
Total interest-bearing deposits.. 698,409 8,604 4.89 733,395 6,937 3.75
FHLB advances......................... 269,623 4,116 6.06 195,538 2,823 5.73
Senior Notes.......................... 29,850 850 11.39 32,000 912 11.40
Other borrowed funds.................. 87,662 1,351 6.61 47,539 618 5.20
---------- ---------- ---------- -----------
Total interest-bearing liabilities. 1,085,544 14,921 5.50 1,008,472 11,290 4.48
---------- -----------
Noninterest-bearing demand deposits... 63,299 62,420
Other noninterest-bearing liabilities. 22,026 16,885
Stockholders' equity.................. 63,656 41,616
---------- ----------
Total liabilities and stockholders'
equity........................... $1,234,525 $1,129,393
========== ==========
Excess of interest-earning assets over
interest-bearing liabilities....... $ 109,747 $ 67,243
========== ==========
Net interest and dividend income...... $ 9,345 $ 9,635
========== ===========
Interest rate spread.................. 2.62% 3.30%
==== ====
Net interest margin................... 3.13% 3.58%
==== ====
Net interest and dividend income to
total average assets............... 3.03% 3.41%
==== ====
</TABLE>
(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.
-14-
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------------------------------------------
1995 1994
----------------------------------- ------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans (1) (2):
Real estate loans (3).............. $554,618 $ 38,705 9.30% $ 527,343 $ 30,865 7.80%
Commercial loans................... 25,094 2,218 11.66 22,452 1,325 7.78
Consumer loans .................... 176,726 12,513 9.47 156,893 10,698 9.12
---------- ---------- ---------- -----------
Total loans..................... 756,438 53,436 9.42 706,688 42,888 8.09
Mortgage-backed securities (4)........ 255,817 12,739 6.64 191,447 8,883 6.19
Loans held for sale (2)............... 1,200 79 8.78 478 30 8.37
Investment securities (4)............. 55,601 2,709 6.50 52,066 2,269 5.81
Other interest-earning assets (5)..... 106,528 4,812 5.96 89,865 4,005 5.88
---------- ---------- ---------- -----------
Total interest-earning assets...... 1,175,584 73,775 8.37 1,040,544 58,075 7.44
---------- -----------
Allowance for loan losses............. (22,811) (22,244)
Cash and due from banks............... 26,141 26,673
Other noninterest-earning assets...... 47,027 47,179
---------- ----------
Total assets....................... $1,225,941 $1,092,152
========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand................... $ 76,995 1,512 2.63 $ 93,139 1,531 2.20
Savings............................ 174,452 3,272 2.51 203,020 3,360 2.21
Time............................... 487,170 21,483 5.90 442,210 14,939 4.52
---------- ---------- ---------- -----------
Total interest-bearing deposits.. 738,617 26,267 4.75 738,369 19,830 3.59
FHLB advances......................... 240,880 10,913 6.06 183,266 8,398 6.13
Senior Notes.......................... 30,999 2,649 11.39 32,000 2,728 11.37
Other borrowed funds.................. 79,583 3,745 6.27 23,261 957 5.49
---------- ---------- ---------- -----------
Total interest-bearing liabilities. 1,090,079 43,574 5.33 976,896 31,913 4.36
---------- -----------
Noninterest-bearing demand deposits... 63,421 61,415
Other noninterest-bearing liabilities. 17,849 13,701
Stockholders' equity.................. 54,592 40,140
---------- ----------
Total liabilities and stockholders'
equity........................... $1,225,941 $1,092,152
========== ==========
Excess of interest-earning assets over
interest-bearing liabilities....... $ 85,505 $ 63,648
========== ==========
Net interest and dividend income...... $ 30,201 $ 26,162
========== ==========
Interest rate spread.................. 3.04% 3.08%
==== ====
Net interest margin................... 3.43% 3.35%
==== ====
Net interest and dividend income to
total average assets............... 3.58% 3.19%
==== ====
</TABLE>
(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.
-15-
<PAGE>
Net interest income decreased $290,000 between the quarters ended September
30, 1995 and 1994. Between the nine months ended September 30, 1995 and 1994,
net interest income increased $4.0 million. The difference between both periods
was primarily due to rate variances. The rising interest rate environment
between periods and the continued reduction in the level of nonperforming assets
were key factors contributing favorably to net interest income. Net interest
income was also favorably impacted by an investment growth strategy which was
implemented in phases throughout the first three quarters of 1994. In addition,
the Bank's acquisition of a $47.5 million portfolio of discounted commercial
loans and commercial mortgages in July 1995 contributed favorably to net
interest income. The weighted average yield on this acquired portfolio is
approximately 18%.
During the third quarter of 1995, the deposit sale and an adjustment to the
yield on the Corporation's investment in reverse mortgages unfavorably impacted
net interest income. The deposit sale impact was the result of the higher level
of liquidity maintained prior to the consummation of the transaction. In
addition, net interest income was unfavorably impacted as lower costing retail
deposits were replaced with higher rate borrowings. A $1.7 million reduction in
interest income on the Corporation's investment in reverse mortgages was the
result of reductions in the yield reflecting changes in the underlying
assumptions regarding current and future real estate values.
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, because of the "asset-sensitive" position of the Corporation (after
the sale of the Association's deposits), a moderate increase or decrease in
interest rates is not expected to have a material affect on net interest income.
-16-
<PAGE>
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, 1995 December 31,1994
------------------ ----------------
(Dollars in Thousands)
Beginning balance ......................... $21,700 $23,613
Balance at acquisition for discounted
commercial mortgages ................... 2,600
Provision for loan losses ................. 1,054 1,683
Charge-offs:
Residential real estate ................ 141 24
Commercial real estate (1) ............. 787 3,168
Commercial ............................. 67 1,021
Consumer (2) ........................... 393 514
------- -------
Total charge-offs .................... 1,388 4,727
------- -------
Recoveries:
Residential real estate ................ 1 29
Commercial real estate (1) ............. 291 486
Commercial ............................. 83 322
Consumer (2) ........................... 147 294
------- -------
Total recoveries ..................... 522 1,131
------- -------
Net charge-offs ...................... 866 3,596
------- -------
Ending balance ............................ $24,488 $21,700
======= =======
Net charge-offs to average gross loans
outstanding, net of unearned income (3) .15% .51%
======= =======
(1) Includes commercial mortgages and construction loans.
(2) Includes lease financings.
(3) Ratio for the nine months ended September 30, 1995 is annualized.
The provision for loan losses decreased $294,000 between the nine months
ended September 30, 1995 and 1994. The reduction is due in part to the decrease
in nonperforming loans and management's continuing review of the loan portfolio.
The ratio of net charge-offs to average gross loans outstanding (net of unearned
income) was .15% for the nine months ended September 30, 1995 compared to .51%
for the year ended December 31, 1994. This decrease reflects the reduction in
net charge-offs between periods.
-17-
<PAGE>
Other Income and Expenses
Other income increased $14.8 million between the third quarters of 1995 and
1994 and $15.1 million between the nine months ended September 30, 1995 and
1994. This significant increase resulted predominantly from a pretax gain of
$14.2 million on the sale of the Association's deposits. Also favorably
impacting both the three and nine month periods was income from an investment in
a limited partnership which totalled $236,000. In addition higher loan servicing
fee income and service charges on deposits in 1995 also contributed to the
increase in other income. The rise in loan servicing fee income reflects the
purchase of Providential in the fourth quarter of 1995 as well as an increase in
fee income associated with lease financing. Service charges on deposits reflect
a higher level of deposits subject to service charges combined with an increase
in the Corporation's fee structure.
Other expenses increased $1.1 million between the third quarter of 1995 and
1994. This increase was attributable to higher salaries and employee benefit
expenses offset in part by lower professional fees and federal deposit insurance
premiums. The increase in salaries of $1.1 million between comparable quarters
was due to a $724,000 increase in compensation expense associated with stock
appreciation rights, resulting from increases in the Corporation's stock price,
as well as increased incentive compensation. Employee benefits increased
$832,000 between quarters and resulted primarily from a supplemental
contribution of $734,000 to the employee 401(k) Plan related to the sale of the
Association's deposits. FDIC insurance premiums were $526,000 lower than the
same quarter of 1994 and resulted from a premium reduction of approximately 80%,
including a retroactive adjustment to June 1, 1995 and the sale of the
Association's deposits. The decrease in professional fees of $290,000 was due to
lower levels of problem assets and reimbursements of legal fees previously
expensed.
Other expenses increased $3.3 million between the nine months ended
September 30, 1995 and 1994. Salaries, employee benefit expenses and the net
costs of foreclosed assets, which increased $3.0 million, $1.1 million and
$835,000, respectively, over the comparable period in 1994, were the major
factors contributing to this rise. Partially offsetting these increases were
reductions of $720,000 and $645,000 in FDIC insurance premiums and equipment
expenses. Consistent with the quarterly results, salaries for the nine months
ended September 30, 1995 were impacted by compensation expense related to stock
appreciation rights and increased incentive compensation along with increased
staffing levels during the first half of 1995. Employee benefits were
significantly impacted by the previously discussed supplemental contribution of
$734,000 to the employee 401(k) Plan. The increase in the net costs of
foreclosed assets was primarily due to an increase of $1.0 million in the
provision for losses on foreclosed assets. The reduction in FDIC insurance
premiums resulted from a rate reduction discussed above. Equipment expenses in
1994 reflect amortization and computer conversion costs which ended in December
of 1994.
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 as a result of the review process. In
addition, the sale of the Association's deposits and certain branch related
assets and real estate are expected to reduce operating expense levels. Also,
further increases in the Corporation's stock price could unfavorably impact
compensation expense related to stock appreciation rights.
Various regulatory bodies including Congress are currently suggesting
several legislative proposals to strengthen the deposit insurance system and the
disparity in insurance premiums paid by Savings Association Insurance Fund
(SAIF) members and Bank Insurance Fund (BIF) members. One such proposal includes
a one-time special assessment to SAIF members followed by a merger of the two
-18-
<PAGE>
funds and other changes. Since the Bank is a member of BIF, this proposed
assessment would only be applicable to deposits purchased by the Bank which are
SAIF insured. No prediction can be made at this time as to how this legislation
will be resolved, and if resolved, what the effect on the Corporation's results
of operations will be.
Income Taxes
The Corporation and its subsidiaries file a consolidated federal income tax
return and separate state income tax returns. The Corporation recorded a
provision for income taxes during the quarter ended September 30, 1995 of
$985,000 compared to an income tax benefit of $100,000 for the same quarter in
1994. For the nine months of 1995 and 1994, the Corporation recorded tax
benefits of $80,000 and $283,000.
The higher tax expense for the three months ended September 30, 1995 is due
to the higher level of earnings from the sale of the Association's deposits
which resulted in higher levels of state and local income taxes. These higher
levels of income taxes were offset by federal tax benefits resulting from
adjustments to the valuation allowance recorded against the Corporation's
deferred tax asset. The Corporation accounts for income taxes in accordance with
SFAS No. 109 which requires the recording of deferred income taxes for the tax
consequences of "temporary differences" including the future use of the
Corporation's net operating loss carryforwards. Such carryforwards approximate
$21.0 million at September 30, 1995. Approximately $18.8 million of these NOL's
are limited and can only be utilized by Providential. The Corporation's other
net operating loss carryforwards were created as a result of prior years'
operating losses.
The Corporation analyzes its projections of taxable income on an ongoing
basis and makes adjustments to its provision (benefit) for incomes taxes
accordingly. Management expects that additional tax benefits may be recorded if
the Corporation's future levels of operating earnings are sufficient to
recognize additional tax benefits.
-19-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) No current reports on Form 8-K were filed during the quarter.
-20-
<PAGE>
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 14, 1995 /s/ MARVIN N. SCHOENHALS
-----------------------------------------------
Marvin N. Schoenhals
Chairman, President and Chief Executive Officer
Date: November 14, 1995 /s/ R. WILLIAM ABBOTT
-----------------------------------------------
R. William Abbott
Executive Vice President and
Chief Financial Officer
-21-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK> 0000828944
<NAME> H:172373\ARTICLE9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 29,190
<INT-BEARING-DEPOSITS> 6,630
<FED-FUNDS-SOLD> 22,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 24,405
<INVESTMENTS-CARRYING> 261,511
<INVESTMENTS-MARKET> 258,961
<LOANS> 775,405
<ALLOWANCE> 24,488
<TOTAL-ASSETS> 1,216,037
<DEPOSITS> 702,871
<SHORT-TERM> 71,958
<LIABILITIES-OTHER> 28,502
<LONG-TERM> 345,070
<COMMON> 57,280
0
0
<OTHER-SE> 10,356
<TOTAL-LIABILITIES-AND-EQUITY> 1,216,037
<INTEREST-LOAN> 53,515
<INTEREST-INVEST> 15,448
<INTEREST-OTHER> 4,812
<INTEREST-TOTAL> 73,775
<INTEREST-DEPOSIT> 26,267
<INTEREST-EXPENSE> 43,574
<INTEREST-INCOME-NET> 30,201
<LOAN-LOSSES> 1,054
<SECURITIES-GAINS> 246
<EXPENSE-OTHER> 28,630
<INCOME-PRETAX> 21,010
<INCOME-PRE-EXTRAORDINARY> 21,090
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,090
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.44
<YIELD-ACTUAL> 8.37
<LOANS-NON> 10,334
<LOANS-PAST> 858
<LOANS-TROUBLED> 13,712
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 24,300
<CHARGE-OFFS> 1,388
<RECOVERIES> 522
<ALLOWANCE-CLOSE> 24,488
<ALLOWANCE-DOMESTIC> 24,488
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 22,084
</TABLE>
