<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, 1997
-------------------------------------------------
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 7, 1997:
Common Stock, par value $.01 per share 12,442,339
- -------------------------------------- --------------------
(Title of Class) (Shares Outstanding)
<PAGE>
WSFS FINANCIAL CORPORATION
FORM 10-Q
INDEX
PART I. Financial Information
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements
--------------------
Consolidated Statement of Operations for the Three and Nine Months
Ended September 30, 1997 and 1996 (Unaudited)...................................... 3
Consolidated Statement of Condition as of September 30, 1997
(Unaudited) and December 31, 1996.................................................. 4
Consolidated Statement of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996 (Unaudited)............................................ 5
Notes to the Consolidated Financial Statements for the Three and Nine
Months Ended September 30, 1997 and 1996 (Unaudited)............................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations.......................................................... 7
-------------------------
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K..................................................... 16
--------------------------------
Signatures.................................................................................... 17
</TABLE>
-2-
<PAGE>
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ----------------------
1997 1996 1997 1996
------ ------ ------ ------
(Unaudited)
(Dollars in Thousands, Except Earnings Per Share Data)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans ....................... $ 20,721 $19,145 $60,961 $57,269
Interest on mortgage-backed securities ........... 6,357 5,239 20,050 14,346
Interest and dividends on investment securities .. 710 685 1,963 1,635
Other interest income ............................ 2,813 1,283 6,678 5,010
-------- ------- ------- -------
30,601 26,352 89,652 78,260
-------- ------- ------- -------
Interest expense:
Interest on deposits ............................. 7,950 7,870 23,522 23,444
Interest on Federal Home Loan Bank advances ...... 5,962 4,514 16,667 13,719
Interest on federal funds purchased and securities
sold under agreements to repurchase............. 3,002 1,762 9,153 4,120
Interest on senior notes.......................... 829 829 2,486 2,504
Interest on other borrowed funds.................. 98 80 270 264
-------- ------- ------- -------
17,841 15,055 52,098 44,051
-------- ------- ------- -------
Net interest income.................................... 12,760 11,297 37,554 34,209
Provision for loan losses.............................. 660 477 1,859 1,285
-------- ------- ------- -------
Net interest income after provision for loan losses ... 12,100 10,820 35,695 32,924
-------- ------- ------- -------
Other income:
Loan servicing fee income......................... 799 859 2,383 2,447
Service charges on deposit accounts............... 1,175 739 3,316 2,134
Securities gains (losses)......................... 94 (331) 98 (408)
Other income...................................... 583 617 1,851 1,647
-------- ------- ------- -------
2,651 1,884 7,648 5,820
-------- ------- ------- -------
Other expenses:
Salaries and other compensation .................. 3,529 3,534 9,768 10,628
Employee benefits and other personnel expenses ... 832 916 2,574 2,679
Equipment expense ................................ 362 313 1,040 945
Data processing expense .......................... 591 595 1,771 1,761
Occupancy expense ................................ 688 634 2,055 1,857
Marketing expense ................................ 270 171 819 510
Professional fees ................................ 307 451 976 1,140
Net costs of assets acquired through foreclosure . 127 277 754 1,104
Outsourced operations ............................ 647 1,509
Other operating expenses ......................... 1,385 1,249 4,365 3,886
-------- ------- ------- -------
8,738 8,140 25,631 24,510
-------- ------- ------- -------
Income before taxes.................................... 6,013 4,564 17,712 14,234
Income tax provision (benefit)......................... 1,733 (1,668) 5,195 1,652
-------- ------- ------- -------
Net income............................................. $ 4,280 $ 6,232 $12,517 $12,582
======== ======= ======= =======
Earnings per share .................................... $ .34 $ .45 $ .98 $ .88
Weighted average common and common equivalent shares
outstanding ......................................... 12,630,524 13,985,811 12,717,686 14,250,505
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
(Dollars in Thousands)
<S> <C> <C>
Assets
Cash and due from banks................................................ $ 20,651 $ 24,651
Federal funds sold and securities purchased under agreements to resell. 49,500 25,400
Interest-bearing deposits in other banks............................... 3,956 5,802
Investment securities held-to-maturity................................. 14,040 17,680
Investment securities available-for-sale............................... 30,034 1,253
Mortgage-backed securities held-to-maturity............................ 302,704 313,329
Mortgage-backed securities available-for-sale.......................... 51,562 51,923
Investment in reverse mortgages, net................................... 32,891 35,796
Loans held for sale.................................................... 2,214 758
Loans, net of allowance for loan losses of $25,722 at September 30, 1997
and $24,740 at December 31, 1996..................................... 930,532 824,125
Stock in Federal Home Loan Bank of Pittsburgh, at cost................. 21,758 16,135
Assets acquired through foreclosure.................................... 2,302 6,441
Premises and equipment................................................. 7,168 5,966
Accrued interest and other assets...................................... 26,297 28,376
---------- ----------
Total assets........................................................... $1,495,609 $1,357,635
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits............................................................... $ 737,792 $ 744,886
Federal funds purchased and securities sold under agreements to repurchase 170,694 159,304
Federal Home Loan Bank advances........................................ 435,152 322,699
Senior notes........................................................... 29,100 29,100
Other borrowed funds................................................... 11,877 7,816
Accrued expenses and other liabilities................................. 28,078 18,042
---------- ----------
Total liabilities...................................................... 1,412,693 1,281,847
---------- ----------
Commitments and contingencies
Stockholders' Equity:
Serial preferred stock $.01 par value, 7,500,000 shares authorized; 10%
Convertible Preferred Stock, Series 1, 2,000,000 shares authorized; issued
and outstanding, none at September 30, 1997 and December 31, 1996 .
Common stock $.01 par value, 20,000,000 shares authorized; issued
14,604,948 at September 30, 1997 and 14,567,498 at December 31, 1996 146 146
Capital in excess of par value......................................... 57,411 57,289
Net unrealized gains on securities available-for-sale, net of tax ..... 466 166
Retained earnings ..................................................... 45,380 32,863
Treasury stock at cost, 2,162,609 shares at September 30, 1997 and 1,655,200
shares at December 31, 1996 ....................................... (20,487) (14,676)
---------- ----------
Total stockholders' equity............................................. 82,916 75,788
---------- ----------
Total liabilities and stockholders' equity............................. $1,495,609 $1,357,635
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------
1997 1996
----------- ------------
(Unaudited)
(Dollars in Thousands)
<S> <C> <C>
Operating activities:
Net income ................................................................. $ 12,517 $ 12,582
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses ................................................ 1,859 1,285
Provision for losses on assets acquired through foreclosure .............. 325
Depreciation, accretion and amortization ................................. 1,086 (523)
(Increase) decrease in accrued interest receivable and other assets ...... 1,531 (4,671)
Origination of loans held for sale........................................ (18,289) (23,857)
Proceeds from loans held for sale......................................... 16,657 26,908
Increase in accrued interest payable and other liabilities................ 9,526 7,556
Other, net ............................................................... (2,901) (482)
---------- ------------
Net cash provided by operating activities....................................... 21,986 19,123
---------- ----------
Investing activities:
Net decrease in interest-bearing deposits in other banks ................... 1,846 2,550
Maturities of investment securities ........................................ 5,020 3,535
Sales of investment securities available-for-sale .......................... 20,070 25,825
Sales of mortgage-backed securities available-for-sale ..................... 13,229
Purchases of investment securities held-to-maturity ........................ (46)
Purchases of investment securities available-for-sale ...................... (49,922) (54,615)
Repayments of mortgage-backed securities held-to-maturity .................. 62,377 36,474
Repayments of mortgage-backed securities available-for-sale ................ 5,075 795
Purchases of mortgage-backed securities held-to-maturity.................... (52,132) (61,441)
Purchases of mortgage-backed securities available-for-sale.................. (17,593) (38,763)
Repayments of reverse mortgages ............................................ 14,277 8,328
Disbursements for reverse mortgages ........................................ (7,950) (9,102)
Sale of loans............................................................... 2,895 4,297
Purchase of loans .......................................................... (12,897)
Net increase in loans ...................................................... (117,631) (12,331)
Net (increase) decrease in stock of Federal Home Loan Bank of Pittsburgh ... (5,623) 707
Sales of assets acquired through foreclosure, net .......................... 11,532 4,505
Other, net.................................................................. (2,206) (1,372)
---------- -----------
Net cash used for investing activities.......................................... (116,782) (103,505)
---------- ----------
Financing activities:
Net increase in demand and savings deposits ............................... 8,680 484
Net increase (decrease) in certificates of deposit and time deposits ....... (11,938) 14,592
Net increase in federal funds purchased and securities sold under
agreements of repurchase.................................................. 11,389 64,998
Receipts from additional borrowed funds .................................... 530,000 55,000
Repayments of other borrowed funds.......................................... (417,546) (61,840)
Issuance of common stock ................................................... 122 153
Extinguishment of senior notes ............................................. (750)
Purchase of treasury stock ................................................. (5,811) (5,725)
----------- ------------
Net cash provided by financing activities....................................... 114,896 66,912
---------- ------------
Increase (decrease) in cash and cash equivalents ........................... 20,100 (17,470)
Cash and cash equivalents at beginning of period ........................... 50,051 62,635
----------- ------------
Cash and cash equivalents at end of period ................................. $ 70,151 $ 45,165
========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest during the year ......................................... $ 45,019 $ 36,929
Cash paid (refunded) for income taxes........................................... (1,542) 4,568
Loans transferred to assets acquired through foreclosure ....................... 5,812 3,830
Net change in unrealized gains on securities available-for-sale, net of tax .... 300 107
Assets acquired through foreclosure transferred to investments in real estate... 4,258
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
WSFS FINANCIAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
WSFS Financial Corporation (the "Corporation") is the parent of
Wilmington Savings Fund Society, FSB (the "Bank"). The consolidated financial
statements for the three and nine months ended September 30, 1997 include the
accounts of the parent company, the Bank and its wholly-owned subsidiaries,
WSFS Credit Corporation, 838 Investment Group, Inc., Community Credit
Corporation and Star States Development Company.
The consolidated statement of condition as of September 30, 1997, the
consolidated statement of operations for the three and nine months ended
September 30, 1997 and 1996 and the consolidated statement of cash flows for
the three and nine months ended September 30, 1997 and 1996 are unaudited and
include all adjustments solely of a normal recurring nature which management
believes are necessary for a fair presentation. All significant intercompany
transactions are eliminated in consolidation. Certain reclassifications have
been made to prior periods' financial statements to conform them to the
September 30, 1997 presentation. The results of operations for the three and
nine month periods ending September 30, 1997 are not necessarily indicative of
the expected results for the full year ending December 31, 1997. The
accompanying unaudited financial statements should be read in conjunction with
the audited financial statements and notes thereto included in the
Corporation's 1996 Annual Report.
2. EARNINGS PER SHARE
Earnings per share is computed by dividing income applicable to common
stockholders by the weighted average number of common stock and common stock
equivalents outstanding during the periods presented. Common stock equivalents
represent the dilutive effect of the assumed exercise of certain outstanding
stock options.
-6-
<PAGE>
WSFS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
WSFS Financial Corporation (the "Corporation") is a savings and loan
holding company headquartered in Wilmington, Delaware. Substantially, all of
the Corporation's assets are held by its subsidiary, Wilmington Savings Fund
Society, FSB (the "Bank" or "WSFS"), the largest thrift institution
headquartered in Delaware and among the five largest financial institutions in
the state on the basis of total deposits. The Corporation's market area is the
Mid-Atlantic region of the United States which is characterized by a
diversified manufacturing and service economy. The banking operations of WSFS
are presently conducted from 16 retail banking offices located in the
Wilmington and Dover, Delaware areas. The Bank provides residential real
estate, commercial real estate, commercial and consumer lending services and
funds these activities primarily by attracting retail deposits. Deposits are
insured by the Federal Deposit Insurance Corporation.
Additional subsidiaries of the Bank include WSFS Credit Corporation
("WCC"), which is engaged primarily in motor vehicle leasing, and 838
Investment Group, Inc. which markets various insurance and mutual fund
products through the Bank's branch system. Community Credit Corporation
("CCC") specializes in consumer loans secured by first and second mortgages.
An additional subsidiary, Star States Development Company ("SSDC") is
currently inactive with the exception of one remaining parcel of land which is
being marketed for sale. In November 1994, the Bank acquired Providential Home
Income Plan, Inc. ("Providential"), a San Francisco, California-based reverse
mortgage lender. The management and operations of Providential were merged
into the Bank in November 1996.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Financial Condition
Total assets grew $138.0 million during the nine months ending September
30, 1997, to $1.5 billion. Asset growth included increases of $106.4 million
in net loans, $25.1 million in investment securities and $18.3 million in cash
and short-term investments. Loan growth included an increase of $53.3 million
in leases, $35.9 million in commercial loans of and $21.2 million in consumer
loans. Commercial loan growth was primarily attributable to a $35.5 million
loan to refinance an existing employer stock ownership plan (ESOP) loan. This
loan is secured by stock of the company and U.S. treasury securities. The
growth in investment securities reflects purchases of $20.0 million in U.S.
treasury securities and $10.0 million in government agency notes, partially
offset by maturities of $5.0 million in municipal and corporate bonds. Asset
growth was offset in part by a $11.0 million decline in mortgage-backed
securities. This decrease resulted primarily from principal repayments and the
sale of $12.7 million in GNMA securities, partially offset by the purchase of
$69.8 million of high-quality collateralized mortgage obligations in the first
quarter of 1997.
Total liabilities increased $130.8 million between December 31, 1996,
and September 30, 1997. This increase resulted primarily from additional
borrowings of $127.9 million, of which $112.5 million were Federal Home Loan
Bank advances. Partially offsetting these increases was a $7.1 million decline
in deposits. Interest credited on deposits during the nine month period
totaled $11.5 million for a net deposit outflow of $18.6 million.
-7-
<PAGE>
Capital Resources
Stockholders' equity increased $7.1 million between December 31, 1996 and
September 30, 1997. This increase reflects net income of $12.5 million for the
first nine months of 1997 and a $300,000 increase in the net unrealized gains
on securities available-for-sale. These increases to stockholders' equity were
partially offset by the repurchase of 507,409 shares of treasury stock for
$5.8 million. At September 30, 1997, the Corporation held 2,162,609 shares of
its treasury stock at a cost of $20.5 million. A table presenting the Bank's
consolidated capital position relative to the minimum regulatory requirements
as of September 30, 1997 follows (dollars in thousands):
<TABLE>
<CAPTION>
Consolidated Regulatory
Bank Capital Requirement Excess
-------------------------- -------------------------- -------------------------
Percentage of Percentage of Percentage of
Amount Assets Amount Assets Amount Assets
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Tangible Capital ................... $100,226 6.72% $22,359 1.50% $77,867 5.22%
Core Capital ....................... 100,827 6.76 59,648 4.00 41,179 2.76
Tier 1 Capital ..................... 100,827 10.13 39,816 4.00 61,011 6.13
Risk-based Capital ................. 106,763 10.73 79,633 8.00 27,130 2.73
</TABLE>
Under Office of Thrift Supervision (OTS) capital regulations, savings
institutions such as the Bank must maintain "tangible" capital equal to 1.5%
of adjusted total assets, "core" capital equal to 4.0% of adjusted total
assets and "total" or "risk-based" capital (a combination of core and
"supplementary" capital) equal to 8.0% of risk-weighted assets. In addition,
OTS regulations impose certain restrictions on savings associations that have
a total risk-based capital ratio that is less than 8.0%, a ratio of tier 1
capital to risk-weighted assets of less than 4.0% or a ratio of tier 1 capital
to adjusted total assets of less than 4.0% (or 3.0% if the institution is
rated Composite 1 under the OTS examination rating system). For purposes of
these regulations, tier 1 capital has the same definition as core capital. At
September 30, 1997, the Bank is classified as a "well capitalized" institution
and is in compliance with all regulatory capital requirements.
Management anticipates that the Bank will continue to be classified as
well-capitalized.
Liquidity
The OTS requires institutions, such as the Bank, to maintain a 5.0%
minimum liquidity ratio of cash and qualified assets to net withdrawable
deposits and borrowings due within one year. At September 30, 1997, the Bank's
liquidity ratio was 8.1% compared to 8.0% at December 31, 1996. Additionally,
the Corporation is required to maintain a reserve of 100% of the aggregate
interest expense for 12 full calendar months on the $29.1 million of senior
notes. The interest reserve requirement on the senior notes at September 30,
1997 was approximately $3.2 million.
NONPERFORMING ASSETS
The table on the following page 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.
-8-
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Dollars in Thousands)
<S> <C> <C>
Nonaccruing loans:
Commercial .............................................. $ 662 $ 550
Consumer ................................................ 225 224
Commercial mortgages .................................... 3,955 3,243
Residential mortgages ................................... 3,471 3,790
Construction ............................................ 1,800 3,529
---------- ----------
Total nonaccruing loans ...................................... 10,113 11,336
Nonperforming investments in real estate ..................... 989 1,500
Assets acquired through foreclosure .......................... 2,302 6,441
---------- ----------
Total nonperforming assets ................................... $ 13,404 $ 19,277
========== ===========
Restructured loans ........................................... $ 4,740 $ 10,967
========== ===========
Past due loans:
Residential mortgages ................................... $ 150 $ 328
Commercial and commercial mortgages ..................... 522 832
Consumer ................................................ 244 510
---------- ----------
Total past due loans ......................................... $ 916 $ 1,670
========== ===========
Ratios:
Nonaccruing loans to total loans (1) .................... 1.06% 1.34%
Allowance for loan losses to total gross loans (1)....... 2.61 2.84
Nonperforming assets to total assets .................... .90 1.42
</TABLE>
(1) Excludes loans held for sale.
Nonperforming assets decreased $5.9 million between December 31, 1996 and
September 30, 1997. This decrease resulted from the sale of a $5.1 million
asset acquired through foreclosure. Nonperforming investments in real estate
declined $511,000 during the first nine months of 1997. This decrease resulted
from the partial write-down of the Corporation's investment in undeveloped
land, intended for single family housing. An analysis of the change in the
balance of nonperforming assets is presented as follows:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1997 December 31, 1996
-------------------- -----------------
(In Thousands)
<S> <C> <C>
Beginning balance......................................... $ 19,277 $ 23,403
Additions ........................................... 15,729 11,010
Collections/sales ................................... (20,449) (7,631)
Transfers to accrual/restructured status ............ (1,305) (2,194)
Transfers to investment in real estate .............. (5,619)
Provisions, charge-offs, other adjustments........... 152 308
---------- -----------
Ending balance ........................................... $ 13,404 $ 19,277
========== ===========
</TABLE>
-9-
<PAGE>
The timely identification of problem loans is a key element in the
Corporation's strategy to manage its loan portfolios. Timely identification
enables the Corporation to take appropriate action and, accordingly, minimize
losses. An asset review system which was established to monitor the asset
quality of the Corporation's loans and investments in real estate portfolios
facilitates the identification of problem assets. In general, this system
utilizes guidelines established by federal regulation; however, there can be
no assurance that the levels or the categories of problem loans and assets
established by the Bank are the same as those which would result from a
regulatory examination.
INTEREST SENSITIVITY
The matching of maturities or repricing periods of interest-sensitive
assets and liabilities to ensure a favorable interest rate spread and mitigate
exposure to fluctuations in interest rates is the Corporation's primary focus
for achieving its asset/liability management strategies. Management regularly
reviews interest-rate sensitivity of the Corporation and
adjusts sensitivity within acceptable tolerance ranges established by
management as needed. At September 30, 1997, interest-bearing liabilities
exceeded interest-earning assets that mature within one year
(interest-sensitivity gap) by $16.9 million. The Corporation's
interest-sensitive assets as a percentage of interest-sensitive liabilities
within the one-year window declined to 97.7% at September 30, 1997 compared to
108.5% at December 31, 1996. Likewise, the one-year interest-sensitive gap as
a percentage of total assets decreased to a negative 1.13% from a positive
3.86% at December 31, 1996. The decrease was due primarily to the
Corporation's continuing effort to effectively manage interest rate risk and
ensure a favorable interest rate spread.
COMPARISON FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Results of Operations
The Corporation reported net income of $4.3 million, or $0.34 per share
for the three months ended September 30, 1997 as compared to $6.2 million, or
$0.45 per share for the third quarter of 1996. Net income for the nine months
ended September 30, 1997 was $12.5 million, or $0.98 per share compared to
$12.6 million or $0.88 per share for the same period last year. The decrease
in net income between quarters resulted from the recognition of a $3.4 million
tax benefit in the third quarter of 1996. Excluding this benefit, net income
grew 51% between quarters and 36% between comparable nine month periods.
The higher level of pretax earnings for both the three and nine month
periods reflects an increase in net interest income of $1.5 million and $3.3
million, respectively. Net interest income continues to be favorably affected
by the growth in interest-earning assets and the reduction in nonperforming
assets. Noninterest income increased $767,000 and $1.8 million between
comparable three and nine month periods. This increase resulted primarily from
changes in the deposit fee structure and net securities losses incurred in
1996 and not in 1997.
Noninterest expenses increased $598,000 and $1.1 million between the three and
nine months ended September 30, 1997. Increases in the number of branches,
marketing expenses and costs associated with stock appreciation rights
adversely impacted noninterest expenses in 1997. These increases were
partially offset by lower professional fees and the net costs of assets
acquired through foreclosure.
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.
-10-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30,
---------------------------------------------------------------------------------
1997 1996
--------------------------------------- -----------------------------------
Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate(1)
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans (2) (3):
Real estate loans (4)............ $ 578,624 $ 12,773 8.83% $ 586,156 $ 13,513 9.22%
Commercial loans ................ 64,638 1,368 10.18 28,473 717 9.85
Consumer loans................... 298,418 6,542 8.70 212,932 4,872 9.10
---------- --------- ---------- ---------
Total loans.................... 941,680 20,683 8.92 827,561 19,102 9.23
Mortgage-backed securities (5)........ 372,684 6,357 6.82 306,863 5,239 6.83
Loans held for sale (3)............... 2,005 38 7.58 2,359 43 7.29
Investment securities (5)............. 44,066 710 6.44 43,315 685 6.33
Other interest-earning assets ........ 103,876 2,813 10.60 77,954 1,283 6.58
---------- --------- ---------- ---------
Total interest-earning assets.... 1,464,311 30,601 8.44 1,258,052 26,352 8.38
--------- ---------
Allowance for loan losses............. (24,812) (24,469)
Cash and due from banks............... 17,036 22,990
Other noninterest-earning assets...... 36,633 42,554
---------- ----------
Total assets..................... $1,493,168 $1,299,127
========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand................. $ 57,814 380 2.61 $ 53,966 364 2.68
Savings.......................... 163,799 1,196 2.90 156,916 1,039 2.63
Time............................. 446,692 6,374 5.66 458,130 6,467 5.62
---------- --------- ----------- ---------
Total interest-bearing deposits 668,305 7,950 4.72 669,012 7,870 4.68
FHLB advances......................... 406,812 5,962 5.81 306,554 4,514 5.86
Senior notes.......................... 29,100 829 11.39 29,100 829 11.39
Other borrowed funds.................. 211,486 3,100 5.86 128,713 1,842 5.72
----------- --------- ----------- ---------
Total interest-bearing liabilities 1,315,703 17,841 5.42 1,133,379 15,055 5.31
--------- ---------
Noninterest-bearing demand deposits... 72,726 67,571
Other noninterest-bearing liabilities. 22,576 20,321
Stockholders' equity.................. 82,163 77,856
----------- ----------
Total liabilities and stockholders'
equity........................... $1,493,168 $1,299,127
========== ==========
Excess of interest-earning assets over
interest-bearing liabilities..... $ 148,608 $ 124,673
=========== ==========
Net interest and dividend income...... $ 12,760 $ 11,297
========= ==========
Interest rate spread.................. 3.02% 3.07%
==== ====
Net interest margin................... 3.57% 3.59%
==== ====
Net interest and dividend income to
total average assets............. 3.50% 3.48%
==== ====
</TABLE>
(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-
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------------------------------------------------
1997 1996
--------------------------------------- -----------------------------------
Average Yield/ Average Yield/
Balance Interest Rate(1) Balance Interest Rate(1)
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Loans (2) (3):
Real estate loans (4)............ $ 583,183 $ 39,572 9.05% 586,411 $ 40,830 9.28%
Commercial loans ................ 51,540 3,269 9.93 26,627 1,980 9.77
Consumer loans................... 273,393 18,020 8.81 205,716 14,215 9.23
--------- --------- ---------- ---------
Total loans.................... 908,116 60,861 9.03 818,754 57,025 9.29
Mortgage-backed securities (5)........ 391,204 20,050 6.83 285,063 14,346 6.71
Loans held for sale (3)............... 1,629 100 8.18 4,456 244 7.30
Investment securities (5)............. 41,380 1,963 6.33 33,813 1,635 6.45
Other interest-earning assets ........ 98,368 6,678 8.95 88,239 5,010 7.57
--------- --------- ---------- ---------
Total interest-earning assets.... 1,440,697 89,652 8.35 1,230,325 78,260 8.48
--------- ---------
Allowance for loan losses............. (24,762) (24,490)
Cash and due from banks............... 17,059 23,331
Other noninterest-earning assets...... 36,018 41,764
---------- ----------
Total assets..................... $1,469,012 $1,270,930
========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand................. $ 57,881 1,130 2.61 $ 54,699 1,064 2.60
Savings.......................... 160,957 3,368 2.80 157,220 3,049 2.59
Time............................. 452,137 19,024 5.63 455,831 19,331 5.66
--------- --------- ---------- ---------
Total interest-bearing deposits 670,975 23,522 4.69 667,750 23,444 4.69
FHLB advances......................... 381,560 16,667 5.84 310,907 13,719 5.89
Senior notes.......................... 29,100 2,486 11.39 29,303 2,504 11.39
Other borrowed funds.................. 217,756 9,423 5.77 101,144 4,384 5.78
---------- --------- ---------- ---------
Total interest-bearing liabilities 1,299,391 52,098 5.35 1,109,104 44,051 5.30
--------- ---------
Noninterest-bearing demand deposits... 71,685 66,608
Other noninterest-bearing liabilities. 18,878 18,668
Stockholders' equity.................. 79,058 76,550
---------- ----------
Total liabilities and stockholders'
equity........................... $1,469,012 $1,270,930
========== ==========
Excess of interest-earning assets over
interest-bearing liabilities..... $ 141,306 $ 121,221
=========== ==========
Net interest and dividend income...... $ 37,554 $ 34,209
========= ==========
Interest rate spread.................. 3.00% 3.18%
==== ====
Net interest margin................... 3.53% 3.71%
==== ====
Net interest and dividend income to
total average assets............. 3.46% 3.59%
==== ====
</TABLE>
(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.
-12-
<PAGE>
Net interest income increased $1.5 million between the third quarter of
1997 and 1996 and $3.3 million between the nine months ended September 30,
1997 and 1996. This increase resulted from the growth of interest-earning
assets which outpaced the growth of interest-bearing liabilities. The interest
rate spread and margin decreased between both periods as a result of
additional wholesale investment purchases.
Prevailing economic conditions greatly influence net interest income and
the levels of interest-earning assets and interest-bearing liabilities. The
projected interest rate environment in conjunction with the current
asset/liability management strategies are anticipated to favorably impact 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:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1997 December 31, 1996
------------------ -----------------
(Dollars in Thousands)
<S> <C> <C>
Beginning balance ............................................ $24,740 $24,167
Transfer from lease residual reserve ......................... 362
Reclass from allowance for losses on foreclosed assets ....... 848
Provision for loan losses .................................... 1,859 2,015
Charge-offs:
Residential real estate ................................. 193 185
Commercial real estate (1) .............................. 480 416
Commercial............................................... 83 605
Consumer (2) ............................................ 1,222 880
------- -------
Total charge-offs..................................... 1,978 2,086
------- -------
Recoveries:
Residential real estate ................................. 1 15
Commercial real estate (1) .............................. 29 4
Commercial .............................................. 19 15
Consumer (2) ............................................ 204 248
------- -------
Total recoveries ..................................... 253 282
------- -------
Net charge-offs ...................................... 1,725 1,804
------- -------
Ending balance ............................................... $25,722 $24,740
======= =======
Net charge-offs to average gross loans outstanding, net
of unearned income (3) .................................. .25% .22%
======= =======
</TABLE>
(1) Includes commercial mortgages and construction loans.
(2) Includes lease financings.
(3) Ratio for the nine months ended September 30, 1997 is annualized.
The provision for loan losses increased by $183,000 between the three
months ended September 30, 1997 and 1996, and $574,000 between comparable nine
month periods. These increases were due in part to loan growth and
management's continuing review of the loan portfolio.
-13-
<PAGE>
Other Income
Noninterest income increased $767,000 and $1.8 million between the three
and nine months ended September 30, 1997. The majority of this increase
resulted from service charges on deposits which grew $436,000 and $1.2 million
between the respective three and nine month periods. This growth reflects the
implementation of a new fee structure which began January 1, 1997. In addition
the third quarter of 1996 included a loss of $353,000 on the disposition of a
fund, classified as an investment available-for-sale, which invested in
adjustable-rate government securities.
Other Expenses
Noninterest expenses increased $598,000 and $1.1 million between the
three and nine months ended September 30, 1997 and 1996. The majority of this
increase resulted from expenses associated with stock appreciation rights
which increased $701,000 and $1.3 million between comparable three and nine
month periods.
The comparability between periods of certain expense line items has been
affected by the strategic technology alliance entered into on March 1, 1997
between WSFS and ALLTEL (the company that has been managing the Corporation's
data processing for eight years). Under this five year agreement, ALLTEL, in
addition to providing data processing, will also employ the on-site back
office personnel and manage deposit and loan operation functions. As a result,
certain costs, most of which would have been previously classified as salaries
and personnel related expenses, are now classified as outsourced operations.
The cost of outsourced operations for the three and nine months ended
September 30, 1997 were $647,000 and $1.5 million, respectively. Salaries,
less the above mentioned expenses associated with stock appreciation rights,
declined $706,000 and $2.2 million between the same periods.
Management continues to review existing operations as well as other
income opportunities in order to enhance earnings. Accordingly, other income
and other 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". The
Corporation recorded a provision for income taxes of $1.7 million and $5.2
million during the three and nine months ended September 30, 1997. This
compares to a $1.7 million income tax benefit for the third quarter of 1996
and $1.7 million income tax provision for the nine months ended September 30,
1996. The respective three and nine month periods in 1996 included a $3.4
million tax benefit resulting from the merger of Providential into WSFS. As a
result of this merger, certain Providential tax benefits which were previously
offset by a valuation allowance have become recognizable by WSFS because of
the ability to offset future taxable income of the Corporation with the net
operating carryforwards. The effective tax rate in 1997 was also favorably
impacted by the ESOP loan discussed earlier, interest income on which is 50%
excludable from federal income taxes.
The Corporation analyzes its projections of taxable income on an ongoing
basis and makes adjustments to its provision for income taxes accordingly.
-14-
<PAGE>
ACCOUNTING DEVELOPMENTS
In March 1997 the Financial Accounting Standards board (FASB) issued
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings per
Share" (EPS). This statement, which supersedes APB Opinion No. 15, simplifies
the standards for computing EPS and makes them comparable to international
standards. SFAS No. 128 replaces the current "primary" and "fully diluted"
earnings per share with "basic" and "diluted" earnings per share. Basic EPS is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock,
or resulted in the issuance of common stock that then shared in the earnings
of the company. Diluted EPS is computed similarly to fully diluted EPS
pursuant to APB Opinion No. 15.
SFAS No. 128 is effective for financial statements issued for the periods
ending December 31, 1997. Early application is not permitted and once applied,
prior period restatement is required. If this statement would have been in
effect for these financial statements, the reported EPS would have been as
follows:
For the three months For the nine months
ended September 30, ended September 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
Earnings per share:
Basic $ .34 $ .45 $ .98 $.88
Diluted .34 .45 .98 .88
In June 1997, the FASB adopted SFAS No. 130, "Reporting Comprehensive
Income". According to the statement, all items of "comprehensive income" are
to be reported in a "financial statement that is displayed with the same
prominence as other financial statements". Comprehensive income is defined as
the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. Along
with net income, examples of comprehensive income include foreign currency
translation adjustments, unrealized holding gains and losses on
available-for-sale securities, changes in the market value of a futures
contract that qualifies as a hedge of an asset reported at fair value, and
minimum pension liability adjustments. Currently, the comprehensive income of
the Corporation would consist primarily of net income and unrealized holding
gains and losses on available-for-sale securities. This statement becomes
effective for fiscal years beginning after December 15, 1997.
Additionally, in June 1997, the FASB adopted SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information". This statement which
supersedes SFAS No. 14, requires public companies to report financial and
descriptive information about their reportable operating segments on both an
annual and interim basis. SFAS No. 131 mandates disclosure of a measure of
segment profit/loss, certain revenue and expense items and segment assets. In
addition, the statement requires reporting information on the entity's
products and services, countries in which the entity earns revenues and holds
assets, and major customers. This statement requires changes in disclosures
only and would not effect the financial condition of the Corporation. This
statement becomes effective for fiscal years beginning after December 15,
1997.
-15-
<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.
-16-
<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
/s/ MARVIN N. SCHOENHALS
Date: November 11, 1997 -----------------------------------------------
Marvin N. Schoenhals
Chairman, President and Chief Executive Officer
/s/ R. WILLIAM ABBOTT
Date: November 11, 1997 -----------------------------------------------
R. William Abbott
Executive Vice President and
Chief Financial Officer
-17-
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000828944
<NAME> WSFS FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 20,651
<INT-BEARING-DEPOSITS> 3,956
<FED-FUNDS-SOLD> 49,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 81,596
<INVESTMENTS-CARRYING> 316,744
<INVESTMENTS-MARKET> 0
<LOANS> 958,468
<ALLOWANCE> 25,722
<TOTAL-ASSETS> 1,495,609
<DEPOSITS> 737,792
<SHORT-TERM> 182,571
<LIABILITIES-OTHER> 28,078
<LONG-TERM> 464,252
0
37,070
<COMMON> 0
<OTHER-SE> 45,846
<TOTAL-LIABILITIES-AND-EQUITY> 1,495,609
<INTEREST-LOAN> 60,961
<INTEREST-INVEST> 22,013
<INTEREST-OTHER> 6,678
<INTEREST-TOTAL> 89,652
<INTEREST-DEPOSIT> 23,522
<INTEREST-EXPENSE> 52,098
<INTEREST-INCOME-NET> 37,554
<LOAN-LOSSES> 1,859
<SECURITIES-GAINS> 98
<EXPENSE-OTHER> 25,631
<INCOME-PRETAX> 17,712
<INCOME-PRE-EXTRAORDINARY> 12,517
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,517
<EPS-PRIMARY> 0.98
<EPS-DILUTED> 0.98
<YIELD-ACTUAL> 8.35
<LOANS-NON> 10,113
<LOANS-PAST> 916
<LOANS-TROUBLED> 4,740
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 24,740
<CHARGE-OFFS> 1,978
<RECOVERIES> 253
<ALLOWANCE-CLOSE> 25,722
<ALLOWANCE-DOMESTIC> 25,722
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
