<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 June 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 August 8, 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 Six Months
Ended June 30, 1997 and 1996 (Unaudited)........................................... 3
Consolidated Statement of Condition as of June 30, 1997
(Unaudited) and December 31, 1996.................................................. 4
Consolidated Statement of Cash Flows for the Six Months Ended
June 30, 1997 and 1996 (Unaudited)................................................. 5
Notes to the Consolidated Financial Statements for the Three and Six
Months Ended June 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>
<PAGE>
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 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 .............................. $ 20,686 $ 19,067 $ 40,240 $ 38,124
Interest on mortgage-backed securities .................. 6,903 5,171 13,693 9,107
Interest and dividends on investment securities ......... 715 587 1,253 950
Other interest income ................................... 2,012 1,676 3,865 3,727
------------ ------------ ------------ ------------
30,316 26,501 59,051 51,908
------------ ------------ ------------ ------------
Interest expense:
Interest on deposits .................................... 7,861 7,817 15,572 15,574
Interest on Federal Home Loan Bank advances ............. 5,713 4,556 10,705 9,205
Interest on federal funds purchased and securities
sold under agreements to repurchase ................... 3,215 1,512 6,151 2,358
Interest on senior notes ................................ 828 829 1,657 1,675
Interest on other borrowed funds ........................ 90 57 172 184
------------ ------------ ------------ ------------
17,707 14,771 34,257 28,996
------------ ------------ ------------ ------------
Net interest income .......................................... 12,609 11,730 24,794 22,912
Provision for loan losses .................................... 615 490 1,199 808
------------ ------------ ------------ ------------
Net interest income after provision for loan losses .......... 11,994 11,240 23,595 22,104
------------ ------------ ------------ ------------
Other income:
Loan servicing fee income ................................. 814 884 1,584 1,588
Service charges on deposit accounts ....................... 1,040 724 2,141 1,395
Securities gains (losses) ................................. 2 (78) 4 (77)
Other income .............................................. 711 570 1,268 1,030
------------ ------------ ------------ ------------
2,567 2,100 4,997 3,936
------------ ------------ ------------ ------------
Other expenses:
Salaries .................................................. 2,999 3,434 6,239 7,094
Employee benefits and other personnel expenses ............ 845 840 1,742 1,763
Equipment expense ......................................... 366 319 678 632
Data processing expense ................................... 592 582 1,180 1,166
Occupancy expense ......................................... 679 587 1,367 1,223
Marketing expense ......................................... 271 171 549 339
Professional fees ......................................... 307 446 669 689
Net costs of assets acquired through foreclosure .......... 418 438 627 827
Outsourced operations ..................................... 647 862
Other operating expenses .................................. 1,635 1,424 2,980 2,637
------------ ------------ ------------ ------------
8,759 8,241 16,893 16,370
------------ ------------ ------------ ------------
Income before taxes .......................................... 5,802 5,099 11,699 9,670
Income tax benefit ........................................... 1,633 1,778 3,462 3,320
------------ ------------ ------------ ------------
Net income ................................................... $ 4,169 $ 3,321 $ 8,237 $ 6,350
============ ============ ============ ============
Earnings per share ........................................... $ .33 $ .24 $ .65 $ .44
Weighted average common and common equivalent
shares outstanding ......................................... 12,671,158 14,116,828 12,757,330 14,384,468
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
WSFS FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
(Unaudited)
(Dollars in Thousands)
<S> <C> <C>
Assets
Cash and due from banks .................................................................... $ 22,881 $ 24,651
Federal funds sold and securities purchased under agreements to resell ..................... 43,511 25,400
Interest-bearing deposits in other banks ................................................... 5,646 5,802
Investment securities held-to-maturity ..................................................... 12,906 17,680
Investment securities available-for-sale ................................................... 31,299 1,253
Mortgage-backed securities held-to-maturity ................................................ 325,518 313,329
Mortgage-backed securities available-for-sale .............................................. 66,314 51,923
Investment in reverse mortgages, net ....................................................... 33,501 35,796
Loans held for sale ........................................................................ 1,132 758
Loans, net of allowance for loan losses of $24,758 at June 30, 1997
and $24,740 at December 31, 1996 ......................................................... 909,695 824,125
Stock in Federal Home Loan Bank of Pittsburgh, at cost ..................................... 20,764 16,135
Assets acquired through foreclosure ........................................................ 1,432 6,441
Premises and equipment ..................................................................... 6,800 5,966
Accrued interest and other assets .......................................................... 27,141 28,376
----------- -----------
Total assets ............................................................................... $ 1,508,540 $ 1,357,635
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits ................................................................................... $ 755,463 $ 744,886
Federal funds purchased and securities sold under agreements to repurchase ................. 207,564 159,304
Federal Home Loan Bank advances ............................................................ 405,253 322,699
Senior notes ............................................................................... 29,100 29,100
Other borrowed funds ....................................................................... 9,070 7,816
Accrued expenses and other liabilities ..................................................... 23,579 18,042
----------- -----------
Total liabilities .......................................................................... 1,430,029 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 June 30, 1997 and December 31, 1996
Common stock $.01 par value, 20,000,000 shares authorized; issued
14,585,048 at June 30, 1997 and 14,567,498 at December 31, 1996 ........................ 146 146
Capital in excess of par value ............................................................. 57,327 57,289
Net unrealized gains on securities available-for-sale, net of tax .......................... 425 166
Retained earnings .......................................................................... 41,100 32,863
Treasury stock at cost, 2,162,609 shares at June 30, 1997 and 1,655,200 shares
at December 31, 1996 ................................................................... (20,487) (14,676)
----------- -----------
Total stockholders' equity ................................................................. 78,511 75,788
----------- -----------
Total liabilities and stockholders' equity ................................................. $ 1,508,540 $ 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>
Six Months Ended June 30,
---------------------------
1997 1996
--------- ---------
(Unaudited)
(Dollars in Thousands)
<S> <C> <C>
Operating activities:
Net income ................................................................................. $ 8,237 $ 6,350
Adjustments to reconcile net income to cash provided by operating activities:
Provision for loan losses ................................................................ 1,199 808
Provision for losses on assets acquired through foreclosure .............................. 250
Depreciation, accretion and amortization ................................................. 176 (416)
Increase (decrease) in accrued interest receivable and other assets ...................... 594 (1,055)
Origination of loans held for sale ....................................................... (9,498) (21,577)
Proceeds from loans held for sale ........................................................ 9,002 20,641
Increase in accrued interest payable and other liabilities ............................... 5,197 3,220
Other, net ............................................................................... (1,303) (880)
--------- ---------
Net cash provided by operating activities ...................................................... 13,604 7,341
--------- ---------
Investing activities:
Net (increase) decrease in interest-bearing deposits in other banks ........................ 156 (1,055)
Maturities of investment securities ........................................................ 4,824 3,626
Sales of investment securities available-for-sale .......................................... 9,937
Purchases of investment securities held-to-maturity ........................................ (46)
Purchases of investment securities available-for-sale ...................................... (29,956) (29,844)
Repayments of mortgage-backed securities held-to-maturity .................................. 39,706 24,272
Repayments of mortgage-backed securities available-for-sale ................................ 3,511 232
Purchases of mortgage-backed securities held-to-maturity ................................... (52,131) (61,441)
Purchases of mortgage-backed securities available-for-sale ................................. (17,593) (38,763)
Repayments of reverse mortgages ............................................................ 9,332 5,733
Disbursements for reverse mortgages ........................................................ (5,343) (6,262)
Sales of loans ............................................................................. 2,905 7,042
Purchases of loans ......................................................................... (11,125)
Net increase in loans ...................................................................... (92,487) (10,380)
Net (increase) decrease in stock of Federal Home Loan Bank of Pittsburgh ................... (4,629) 299
Disbursement for real estate held for investment ........................................... (1,321)
Sales of assets acquired through foreclosure, net .......................................... 9,166 2,832
Premises and equipment, net ................................................................ (1,400) (362)
--------- ---------
Net cash used for investing activities ......................................................... (133,985) (106,580)
--------- ---------
Financing activities:
Net increase in demand and savings deposits ................................................ 14,358 8,583
Net increase (decrease) in certificates of deposit and time deposits ....................... (2,677) 14,479
Net increase in federal funds purchased and securities sold under
agreements of repurchase ................................................................. 48,260 66,120
Receipts from additional borrowed funds .................................................... 290,000 55,000
Repayments of other borrowed funds ......................................................... (207,446) (53,681)
Issuance of common stock through the exercise of options ................................... 38 114
Extinguishment of senior notes ............................................................. (750)
Purchase of treasury stock ................................................................. (5,811) (5,725)
--------- ---------
Net cash provided by financing activities ...................................................... 136,722 84,140
--------- ---------
Increase (decrease) in cash and cash equivalents ........................................... 16,341 (15,099)
Cash and cash equivalents at beginning of period ........................................... 50,051 62,635
--------- ---------
Cash and cash equivalents at end of period ................................................. $ 66,392 $ 47,536
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest during the year ......................................................... $ 28,395 $ 23,853
Cash paid (refunded) for income taxes .......................................................... (1,787) 4,333
Loans transferred to assets acquired through foreclosure ....................................... 3,578 2,325
Net change in unrealized gains on securities available-for-sale, net of tax .................... 259 (160)
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 SIX MONTHS ENDED JUNE 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 six months ended June 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 June 30, 1997, the
consolidated statement of operations for the three and six months ended June 30,
1997 and 1996 and the consolidated statement of cash flows for the six months
ended June 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 June 30, 1997 presentation. The
results of operations for the three and six month periods ending June 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 four largest financial institutions in
the state on the basis of total deposits. The Corporation's market area is the
Mid-Atlantic region of the United States which is characterized by a diversified
manufacturing and service economy. The banking operations of WSFS are presently
conducted from 16 retail banking offices located in the Wilmington and Dover,
Delaware areas. The Bank provides residential real estate, commercial real
estate, commercial and consumer lending services and funds these activities
primarily by attracting retail deposits. Deposits are insured by the Federal
Deposit Insurance Corporation.
Additional subsidiaries of the Bank include WSFS Credit Corporation ("WCC"),
which is engaged primarily in motor vehicle leasing, and 838 Investment Group,
Inc. which markets various insurance and mutual fund products through the Bank's
branch system. Community Credit Corporation ("CCC") specializes in consumer
loans secured by first and second mortgages. An additional subsidiary, Star
States Development Company ("SSDC") is currently inactive with the exception of
one remaining parcel of land which is being marketed for sale. In November 1994,
the Bank acquired Providential Home Income Plan, Inc. ("Providential"), a San
Francisco, California-based reverse mortgage lender. The management and
operations of Providential were merged into the Bank in November 1996.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Financial Condition
Total assets grew $150.9 million during the first six months of 1997 to $1.5
billion. This increase included an $85.9 million increase in loans, a $26.6
million increase in mortgage-backed securities and a $25.3 million increase in
investment securities. In addition, short-term investments increased $18.0
million. Loan growth included increases in commercial loans of $36.0 million,
leases of $28.3 million, consumer loans of $15.9 million and commercial
real-estate loans of $12.7 million. The increase in commercial loans was due
primarily to a $35.5 million loan to refinance an employee stock ownership plan
("ESOP") note of a company. Approximately 80% of the loan is secured by U.S.
treasury securities. The growth in mortgage-backed securities reflects the
purchase of $69.8 million in high quality collateralized mortgage obligations in
the first quarter of 1997, offset in part by principal repayments. The growth in
investment securities included purchases of $20.0 million in U.S. treasury
securities and $10.0 million in government agency notes.
Total liabilities increased $148.2 million between December 31, 1996 and
June 30, 1997. Federal Home Loan Bank advances and securities sold under
agreements to repurchase increased $82.6 million and $48.3 million,
respectively. These additional borrowings were utilized to fund the previously
described asset growth. In addition, deposits increased $10.6 million during the
six month period to $755.5 million at June 30, 1997. Interest credited on
deposits during the six month period totaled $6.8 million for a net $3.8 million
deposit inflow.
Capital Resources
Stockholders' equity increased $2.7 million between December 31, 1996 and
June 30, 1997. This increase reflects net income of $8.2 million for the first
six months of 1997 and a $259,000 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 June 30, 1997, the Corporation held 2,162,609 shares of its treasury
stock at a cost of $20.5 million.
-7-
<PAGE>
A table presenting the Bank's consolidated capital position relative to the
minimum regulatory requirements as of June 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 ................... $95,757 6.37% $22,554 1.50% $73,203 4.87%
Core Capital ....................... 96,406 6.41 60,169 4.00 36,237 2.41
Tier 1 Capital ..................... 96,406 9.87 39,090 4.00 57,316 5.87
Risk-based Capital ................. 102,154 10.45 78,180 8.00 23,974 2.45
</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 June 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 June 30, 1997, the Bank's liquidity ratio was
7.1% 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 June 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>
June 30, December 31,
1997 1996
--------- -------------
(Dollars in Thousands)
<S> <C> <C>
Nonaccruing loans:
Commercial ................................................ $ 430 $ 550
Consumer .................................................. 340 224
Commercial mortgages ...................................... 10,065 3,243
Residential mortgages ..................................... 3,866 3,790
Construction .............................................. 3,410 3,529
------- -------
Total nonaccruing loans ........................................ 18,111 11,336
Nonperforming investments in real estate ....................... 989 1,500
Assets acquired through foreclosure ............................ 1,432 6,441
------- -------
Total nonperforming assets ..................................... $20,532 $19,277
======= =======
Restructured loans ............................................. $ 4,740 $10,967
======= =======
Past due loans:
Residential mortgages ..................................... $ 184 $ 328
Commercial and commercial mortgages ....................... 138 832
Consumer .................................................. 254 510
------- -------
Total past due loans ........................................... $ 576 $ 1,670
======= =======
Ratios:
Nonaccruing loans to total loans (1) ...................... 1.94% 1.34%
Allowance for loan losses to total gross loans (1) ........ 2.58 2.84
Nonperforming assets to total assets ...................... 1.36 1.42
</TABLE>
(1) Excludes loans held for sale.
Nonperforming assets increased $1.2 million between December 31, 1996 and
June 30, 1997. This increase included a $6.2 million restructured commercial
real estate loan which was transferred to nonperforming assets. This was offset
in part by the sale of a $5.1 million asset acquired through foreclosure.
Nonperforming investments in real estate declined $511,000 during the first six
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>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
------------------ -----------------
(In Thousands)
<S> <C> <C>
Beginning balance .......................................... $ 19,277 $ 23,403
Additions ............................................. 13,043 11,010
Collections/sales ..................................... (9,716) (7,631)
Transfers to accrual/restructured status .............. (930) (2,194)
Transfers to investment in real estate ................ (5,619)
Provisions, charge-offs, other adjustments ............ (1,142) 308
-------- --------
Ending balance ............................................. $ 20,532 $ 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. The
excess of interest-earning assets over interest-bearing liabilities that mature
within one year (interest-sensitivity gap) decreased from December 31, 1996 by
$19.1 million to $33.3 million at June 30, 1997. The decrease was due primarily
to the Corporation's continuing effort to effectively manage interest rate risk.
Additionally, interest-sensitive assets as a percentage of interest-sensitive
liabilities within one year window declined to 104.6% at June 30, 1997 compared
to 108.5% at December 31, 1996. Likewise, the one year interest-sensitivity gap
as a percentage of total assets decreased to 2.2% from 3.9% at December 31,
1996.
COMPARISON FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Results of Operations
The Corporation reported net income of $4.2 million, or $.33 per share, for
the three months ended June 30, 1997, compared to $3.3 million, or $.24 per
share, for the second quarter of 1996. Net income for the six months ended June
30, 1997 was $8.2 million, or $.65 per share, compared to $6.4 million, or $.44
per share, for the same period last year. Net income grew 26% and 30% between
comparable three and six month periods while earnings per share grew 38% and 48%
during the same periods. Earnings per share were favorably impacted by common
stock repurchased during 1996 and 1997.
The higher level of earnings for both the three and six month periods
reflect an increase in net interest income of $879,000 and $1.9 million. This
increase resulted primarily from the growth in interest-earning assets.
Noninterest income increased $467,000 and $1.1 million between the three and six
months ended June 30, 1997 and 1996. This rise was primarily attributable to
changes in the deposit fee structure in 1997. Noninterest expenses increased
$518,000 and $523,000 between the three and six months ending June 30, 1997 and
1996. This increase was due in part to the addition of two new branches in the
third quarter of 1996 and an increase in marketing and business development
activity.
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 June 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)............ $ 588,847 $ 13,451 9.14% $ 587,268 $ 13,587 9.25%
Commercial loans ................ 60,976 1,194 9.67 26,058 644 9.78
Consumer loans................... 269,995 6,003 8.92 204,415 4,706 9.26
------- --------- ---------- -----------
Total loans.................... 919,818 20,648 9.11 817,741 18,937 9.26
Mortgage-backed securities (5)........ 403,109 6,903 6.85 308,599 5,171 6.70
Loans held for sale (3)............... 1,765 38 8.61 7,339 130 7.09
Investment securities (5)............. 44,311 715 6.45 35,573 587 6.60
Other interest-earning assets ........ 98,138 2,012 8.11 78,598 1,676 8.53
------------ --------- ---------- -----------
Total interest-earning assets.... 1,467,141 30,316 8.35 1,247,850 26,501 8.49
-------- ----------
Allowance for loan losses............. (24,790) (24,618)
Cash and due from banks............... 17,501 22,636
Other noninterest-earning assets...... 33,270 41,797
------------ -----------
Total assets..................... $1,493,122 $1,287,665
========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand................. $ 27,179 133 1.96 $ 54,717 361 2.65
Savings.......................... 161,854 1,125 2.79 159,459 1,044 2.63
Time............................. 484,258 6,603 5.47 458,289 6,412 5.63
----------- -------- ---------- ----------
Total interest-bearing deposits 673,291 7,861 4.68 672,465 7,817 4.68
FHLB advances......................... 390,616 5,713 5.87 312,756 4,556 5.86
Senior notes.......................... 29,100 828 11.39 29,100 829 11.39
Other borrowed funds.................. 228,229 3,305 5.79 110,506 1,569 5.68
----------- --------- ----------- ----------
Total interest-bearing liabilities 1,321,236 17,707 5.36 1,124,827 14,771 5.25
--------- ----------
Noninterest-bearing demand deposits... 73,475 68,579
Other noninterest-bearing liabilities. 20,015 18,823
Stockholders' equity.................. 78,396 75,436
------------ ------------
Total liabilities and stockholders'
equity........................... $1,493,122 $1,287,665
========== ==========
Excess of interest-earning assets over
interest-bearing liabilities..... $ 145,905 $ 123,023
=========== ===========
Net interest and dividend income...... $ 12,609 $ 11,730
========= ==========
Interest rate spread.................. 2.99% 3.24%
==== ====
Net interest margin................... 3.52% 3.76%
==== ====
Net interest and dividend income to
total average assets............. 3.46% 3.64%
==== ====
</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>
Six Months Ended June 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)............ $ 585,500 $ 26,799 9.15% 586,540 $ 27,317 9.31%
Commercial loans ................ 44,883 1,901 9.23 25,694 1,263 9.72
Consumer loans................... 260,673 11,478 8.88 202,069 9,343 9.30
------- --------- ---------- -----------
Total loans.................... 891,056 40,178 9.08 814,303 37,923 9.31
Mortgage-backed securities (5)........ 400,617 13,693 6.85 274,043 9,107 6.65
Loans held for sale (3)............... 1,438 62 8.62 5,516 201 7.29
Investment securities (5)............. 40,014 1,253 6.26 29,011 950 6.55
Other interest-earning assets ........ 95,569 3,865 8.04 93,438 3,727 7.98
------------ --------- ---------- -----------
Total interest-earning assets.... 1,428,694 59,051 8.31 1,216,311 51,908 8.54
--------- -----------
Allowance for loan losses............. (24,737) (24,501)
Cash and due from banks............... 17,072 23,504
Other noninterest-earning assets...... 35,705 41,363
------------ -----------
Total assets..................... $1,456,734 $1,256,677
========== ==========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Money market and interest-
bearing demand................. $ 26,959 263 1.97 $ 55,070 700 2.56
Savings.......................... 159,512 2,172 2.75 157,374 2,010 2.57
Time............................. 485,861 13,137 5.45 454,670 12,864 5.69
----------- -------- ---------- ----------
Total interest-bearing deposits 672,332 15,572 4.67 667,114 15,574 4.69
FHLB advances......................... 368,725 10,705 5.85 313,107 9,205 5.91
Senior notes.......................... 29,100 1,657 11.39 29,405 1,675 11.39
Other borrowed funds.................. 220,943 6,323 5.72 87,208 2,542 5.83
----------- --------- ---------- ----------
Total interest-bearing liabilities 1,291,100 34,257 5.31 1,096,834 28,996 5.29
--------- ----------
Noninterest-bearing demand deposits... 71,157 66,121
Other noninterest-bearing liabilities. 16,998 17,832
Stockholders' equity.................. 77,479 75,890
------------ ------------
Total liabilities and stockholders'
equity........................... $1,456,734 $1,256,677
========== ==========
Excess of interest-earning assets over
interest-bearing liabilities..... $ 137,594 $ 119,477
=========== ==========
Net interest and dividend income...... $ 24,794 $ 22,912
========= ==========
Interest rate spread.................. 3.00% 3.25%
==== ====
Net interest margin................... 3.51% 3.77%
==== ====
Net interest and dividend income to
total average assets............. 3.44% 3.65%
==== ====
</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 $879,000 between the second quarter of 1997
and 1996 and $1.9 million between the six months ended June 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 as well as the impact of the ESOP note on pre-tax income.
Prevailing economic conditions greatly influence net interest income and
the levels of interest-earning assets and interest-bearing liabilities.
Management anticipates a nominal increase in interest rates during the remainder
of 1997. 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>
Six Months Ended Year Ended
June 30, 1997 December 31, 1996
------------------------ -----------------
(Dollars in Thousands)
<S> <C> <C>
Beginning balance ............................................ $24,740 $24,167
Transfer from lease residual reserve ......................... 362
Provision for loan losses .................................... 1,199 2,015
Charge-offs:
Residential real estate ................................. 66 185
Commercial real estate (1) .............................. 400 416
Commercial............................................... 70 605
Consumer (2) ............................................ 769 880
--------- -----------
Total charge-offs..................................... 1,305 2,086
--------- ----------
Recoveries:
Residential real estate ................................. 1 15
Commercial real estate (1) .............................. 2 4
Commercial .............................................. 13 15
Consumer (2) ............................................ 108 248
---------- ----------
Total recoveries ..................................... 124 282
---------- ----------
Net charge-offs ...................................... 1,181 1,804
--------- ---------
Ending balance ............................................... $24,758 $24,740
======= =======
Net charge-offs to average gross loans outstanding, net
of unearned income (3) .................................. .27% .22%
========== ==========
</TABLE>
(1) Includes commercial mortgages and construction loans.
(2) Includes lease financings.
(3) Ratio for the six months ended June 30, 1997 is annualized.
The provision for loan losses increased by $125,000 between the three
months ended June 30, 1997 and 1996, and $391,000 between comparable six 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 $467,000 and $1.1 million between the three
and six months ended June 30, 1997 and 1996. The majority of this increase
resulted from service charges on deposits which grew $316,000 and $746,000
between comparable three and six month periods. This growth reflects the
implementation of a new fee structure which began January 1, 1997.
Other Expenses
Noninterest expenses increased $518,000 and $523,000 between the three and
six months ended June 30, 1997 and 1996. The general growth in noninterest
expenses relates to the opening of two new branches and increased marketing and
business development. The comparability between of 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 six months ended
June 30, 1997 were $647,000 and $862,000, respectively. Consequently, salaries
declined $435,000 and $855,000 between the same periods. Other factors
contributing to the rise in noninterest expenses include marketing expenses
which increased $100,000 between the second quarter 1997 and 1996 and $210,000
between comparable six month periods. In addition, occupancy expenses increased
$92,000 and $144,000 between the comparable three and six month periods,
respectively. This rise resulted primarily from the opening of two branches in
the second half of 1996.
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 during the three and six months ended June
30, 1997 of $1.6 million and $3.5 million, respectively, compared to an income
tax provision of $1.8 and $3.3 million for the same periods in 1996. The
effective tax rates for the three and six months ended June 30, 1997 were 28%
and 30%, respectively, compared to 35% and 34% for the same periods in 1996.
This reduction in rates reflects the recognition in the financial statement of
certain tax benefits which previously had an associated valuation reserve
because it was deemed more likely than not that the benefits would not be
recognized, and interest income from a loan which is partially excludable from
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 six months
ended June 30, ended June 30,
--------------------- ------------------
1997 1996 1997 1996
---- ---- ---- ----
Earnings per share:
Basic $ .33 $ 24 $.65 $.44
Diluted .33 .24 .65 .44
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 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) The following was reported under Other Events on Form 8-K, filed
on April 25, 1997.
On April 25, 1997, the registrant announced that the Board of
Directors approved the repurchase of up to 10%, or 1,250,000 shares,
of the outstanding common stock of the Corporation.
-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
Date: August 12, 1997 /s/ MARVIN N. SCHOENHALS
------------------------------------
Marvin N. Schoenhals
Chairman, President and Chief Executive Officer
Date: August 12, 1997 /s/ R. WILLIAM ABBOTT
----------------------------------
R. William Abbott
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000828944
<NAME> WSFS FINANCIAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 22,881
<INT-BEARING-DEPOSITS> 5,646
<FED-FUNDS-SOLD> 43,511
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 97,613
<INVESTMENTS-CARRYING> 338,424
<INVESTMENTS-MARKET> 0
<LOANS> 935,585
<ALLOWANCE> 24,758
<TOTAL-ASSETS> 1,508,540
<DEPOSITS> 755,463
<SHORT-TERM> 216,634
<LIABILITIES-OTHER> 23,579
<LONG-TERM> 434,353
0
0
<COMMON> 36,986
<OTHER-SE> 41,525
<TOTAL-LIABILITIES-AND-EQUITY> 1,508,540
<INTEREST-LOAN> 40,240
<INTEREST-INVEST> 14,946
<INTEREST-OTHER> 3,865
<INTEREST-TOTAL> 59,051
<INTEREST-DEPOSIT> 15,572
<INTEREST-EXPENSE> 34,257
<INTEREST-INCOME-NET> 24,794
<LOAN-LOSSES> 1,199
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 16,893
<INCOME-PRETAX> 11,699
<INCOME-PRE-EXTRAORDINARY> 3,462
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,237
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.65
<YIELD-ACTUAL> 8.31
<LOANS-NON> 18,111
<LOANS-PAST> 576
<LOANS-TROUBLED> 4,740
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 24,740
<CHARGE-OFFS> 1,305
<RECOVERIES> 124
<ALLOWANCE-CLOSE> 24,758
<ALLOWANCE-DOMESTIC> 24,758
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
