WSFS Reports EPS of $1.07 for the 2nd Quarter 2008
WILMINGTON, Del., July 24, 2008 (PRIME NEWSWIRE) -- WSFS Financial Corporation (Nasdaq:WSFS), the parent company of Wilmington Savings Fund Society, FSB, reported quarterly diluted earnings per share of $1.07, or net income of $6.7 million, compared to $1.11, or $7.2 million in the second quarter of 2007. Net income for the first six months of 2008 was $13.9 million, or $2.22 per diluted share, compared to $15.0 million, or $2.26 in 2007.
During the quarter, earnings continued at a solid pace, allowing the Company to pursue franchise growth opportunities while growing its capital and maintaining an appropriate allowance for loan losses.
- Pre-tax income increased $287,000 or 3% from the first quarter of 2008, despite nearly $2.0 million in additional earnings related to Visa's initial public offering (IPO) in the first quarter of 2008.
- The net interest margin and net interest income improved significantly to 3.20% or $22.4 million from 3.00% or $21.0 million in the first quarter of 2008.
- During the quarter the Company announced a 20% increase to the dividend from the second quarter of 2007.
- WSFS' capital continued its increasing trends and grew by $15.7 million from the second quarter of 2007 remaining substantially above "well-capitalized" levels by all regulatory measures.
- Commercial loan growth continued its strong pace, increasing 16%, or $216.4 million from the second quarter of 2007.
- The Company increased its loan loss reserve ratio from 1.18% to 1.22% by recording a $2.4 million provision for loan losses in the second quarter, stable with levels of the past two quarters, in excess of net charge-offs of $1.1 million.
- Net charge-offs continued at historically low levels and were less than 20 basis points (0.20%) of average loans.
- WSFS acquired a majority interest in 1st Reverse Financial Services, LLC (1st Reverse), specializing in business-to-business reverse mortgage lending through banks and financial institutions throughout the United States.
- * WSFS continued its franchise growth, recently opening branches in Selbyville and Smyrna, Delaware.
CEO outlook and commentary:
Mark A. Turner, WSFS' President and CEO said, "The weak credit environment continues to have an impact on our earnings and that of the industry in general. However, we recognize this market disruption as an opportunity for well capitalized companies with solid earnings to take advantage of growth opportunities. We have done just that.
"In prior quarters, I have discussed a number of decisions we have made in growing our business that have positioned us for the current economic environment. We continue to manage under and benefit from those decisions including maintaining a diversified commercial portfolio with limits on high risk lending activities. As an example, residential development loans now represent less than 7% of our loan portfolio. Additionally, our underwriting standards have resulted in residential and consumer delinquencies that are lower than half the national average, and in some cases much lower. Our securities portfolio continues to perform well and is comprised predominantly of 'plain vanilla' AAA-rated, short duration securities. There are no sub-prime mortgages as collateral in our mortgage-backed portfolio and the collateral underlying these securities is performing well. We have no trust preferred pooled securities in our investment portfolio and our bank owned life insurance (BOLI) investment has not suffered from asset quality or insurance-wrap issues that have affected other banks.
"Earnings remain strong despite the current economic environment. We have grown our margin 20 basis points this quarter through active management of our balance sheet and disciplined product pricing. This growth has helped to increase pre-tax earnings from first quarter levels which is particularly gratifying since the first quarter included $2.0 million in Visa-related earnings. This has allowed us to continue to build our capital levels.
"As a result, we are in a strong position to take advantage of opportunities to grow our franchise. We recently opened new branch offices in Selbyville and Smyrna, continuing our string of branch office openings. In early May we announced the acquisition of a majority ownership in 1st Reverse Financial Services, LLC (1st Reverse). As with many new initiatives, we expect modest start-up losses, and 1st Reverse experienced a $0.02 per share loss this quarter, but believe the revenue and profit opportunities of providing this product line are great. We also are using this economic environment as an opportunity to optimize our banking operations and customer service and retention platform."
Second Quarter 2008 Discussion of Financial Results
Net interest income improves
Net interest income and net interest margin for the second quarter of 2008 were $22.4 million and 3.20%, respectively, a significant increase of $1.4 million or 20 basis points (0.20%) from the first quarter of 2008. These increases were the result of a liability sensitive balance sheet combined with active management of deposit pricing during the recent round of Federal Reserve rate reductions.
Net interest income for the second quarter of 2008 improved by $2.2 million in comparison to the second quarter of 2007. The interest margin increased 10 basis points (0.10%) from 3.10% reported in the second quarter of 2007.
Total commercial loans increased 16% or $216.4 million from June 2007
Commercial and commercial real estate (CRE) loans increased a strong $216.4 million, or 16% over June 30, 2007. More than half of this growth was due to commercial and industrial (C&I) loans. Construction and land development (CLD) loans decreased $12.0 million from June 30, 2007. Total net loans were $2.3 billion at June 30, 2008, an increase of $205.5 million, or 10%, over June 30, 2007.
Commercial and CRE loans increased $46.3 million, or 3% (12% annualized) over March 31, 2008 levels. This included a $36.3 million, or 5% (18% annualized) increase in C&I loans. CLD loans decreased $13.0 million during the quarter. Total net loans increased $47.1 million, or 2% (8% annualized) over March 31, 2008.
The following table summarizes the current loan balances and composition compared to prior periods.
The Company recorded a provision for loan losses of $2.4 million, in the second quarter of 2008, due to continued loan growth and the effect of current economic conditions on the loan portfolio, compared to $1.3 million in the second quarter of 2007 and $2.4 million in the first quarter of 2008. The ratio of allowance for loan losses to total loans increased to 1.22% at June 30, 2008, compared to 1.18% at March 31, 2008. This ratio stood at 1.34% at June 30, 2007.
Nonperforming assets as a percentage of total assets was 0.95% at June 30, 2008 compared to 0.62% at March 31, 2008 and 0.14% at June 30, 2007. The increase from March 31, 2008 is due primarily to a $9.7 million residential development loan. The bank has established a specific reserve for this loan, equal to the difference between its carrying value and estimated net realizable value, the majority of which is included in this quarter's provision for loan losses.
Annualized net charge-offs in the second quarter of 2008 continued at historically low levels and were 0.19% of average loans. This compares to 0.14% for the first quarter of 2008 and 0.10% for the second quarter of 2007.
Total customer deposits (core deposits and customer time deposits) were $1.5 billion at June 30, 2008, an increase of $24.0 million, or 2%, over balances at June 30, 2007. The growth rate in deposits is slower than historical levels and reflects increased competition including competition from a small number of liquidity-focused competitors, as well as additional focus on deposit pricing. This focus on deposit pricing during the recent rounds of Federal Reserve rate reductions contributed to the Company's margin improvement.
Customer deposits increased $9.7 million, or 1% (3% annualized) over levels reported for March 31, 2008. Average customer deposits increased $38.5 million, or 3% (11% annualized) over the first quarter of 2008.
The following table summarizes the current customer deposit balances and composition compared to prior periods.
During the second quarter of 2008, the Company recorded noninterest income of $11.7 million, a slight increase over the second quarter of 2007. This included increases of $320,000 in deposit service charges and $196,000 in loan fee income, primarily due to overall growth in deposits and loans. The increase also included $227,000 in fees from 1st Reverse, which was included in WSFS' results for two months of the quarter. Offsetting these increases was a $760,000 decrease in credit/debit card and ATM income mainly from Cash Connect, WSFS' ATM division. This decrease was mostly due to reduced market rates on ATM bailment fees. Excluding the revenues from Cash Connect, noninterest income increased $815,000, or 12%, from the second quarter of 2007. While noninterest income comparisons were negatively impacted by lower bailment fees, the net interest margin benefited due to lower funding costs.
Noninterest income was $835,000 less than the first quarter of 2008. This first quarter of 2008 included a $1.4 million gain on the sale of shares related to the completion of Visa's initial public offering (IPO) partially offset by a $303,000 charge related to a mark-to-market of trading securities. Excluding these items, noninterest income increased by $232,000, or 2% (8% annualized). This increase included $376,000 in deposit service charges and $134,000 in loan fee income. The increase also included $227,000 in fees from 1st Reverse. Partially offsetting these increases was a $217,000 decrease in credit/debit card and ATM income due to reduced market rates on ATM bailment fees.
Noninterest expense increases reflect continued investment in WSFS franchise
Noninterest expenses for the second quarter of 2008 totaled $21.2 million, which was $2.1 million, or 11% greater than the second quarter of 2007. This increase included $469,000 of expenses related to 1st Reverse which was included in WSFS' results for two months of the quarter. Additionally, salaries and benefits increased $688,000, other operating expenses increased $376,000 and marketing expense increased $280,000. Expenses are actively managed and these increases are in accordance with the Company's growth plans.
Noninterest expenses increased $233,000, or 1% from the first quarter of 2008. As previously mentioned, this increase included $469,000 of expenses related to 1st Reverse. The first quarter of 2008 included a reversal of a $562,000 contingency reserve corresponding with the completion of Visa's IPO. Excluding these items, noninterest expense decreased $798,000, or 4%, compared to the first quarter of 2008. This decrease included a $548,000 decrease in salaries and benefits and a $438,000 decrease in other operating expenses. The decrease in salaries and benefits related to decreased payroll taxes and decreased 401(k) expenses while the decrease in other operating expenses was the result of a number of reduced items.
Pre-tax income increased $287,000 or 3% from the first quarter of 2008; however net income decreased due to an increase in the effective tax rate in the second quarter of 2008. The Company recorded a $3.7 million income tax provision (reflecting a 35.8% effective tax rate) in the second quarter of 2008 versus $4.2 million in the second quarter of 2007 (36.9% effective tax rate) and $2.9 million in the first quarter of 2008 (28.6% effective tax rate). The higher rate in 2007 resulted from a one-time charge to reflect changes in Maryland tax law. The lower rate in the first quarter of 2008 resulted from a $723,000 tax benefit resulting from the expiration of the statute of limitations affecting certain previously recorded reserves. Excluding this tax benefit, the Company would have recorded a $3.6 million tax provision (reflecting a 35.7% effective tax rate). Volatility on effective tax rates from quarter to quarter is expected as the result of tax accounting guidance adopted in the first quarter of 2007, and will continue into the future.
The Company strengthened its capital by growing equity $15.7 million over June 30, 2007 levels. All capital levels are in excess of "well-capitalized" regulatory benchmarks, the regulators' highest capital rating. The Tier 1 capital ratio was 11.03%, significantly above the 6.00% level required to be considered "well-capitalized" under regulatory definitions. The ratio of tangible equity to assets decreased slightly to 6.66% at June 30, 2008 from 6.72% at March 31, 2008, as equity increased $619,000. Tangible book value per share decreased slightly to $34.66 at June 30, 2008, from $34.73 at March 31, 2008 but increased from $31.47 at June 30, 2007. During the quarter the Company repurchased 8,500 shares of common stock at an average price of $48.93 per share. At June 30, 2008, the Company had 531,000 shares remaining under its current share repurchase authorization, or 8.7% of its 6.1 million outstanding shares.
WSFS' Board of Directors declares a quarterly cash dividend of $0.12 per share
The Board of Directors also declared a quarterly cash dividend of $0.12 per share. This dividend represents a 20% increase from that of the second quarter of 2007. This dividend will be paid on August 29, 2008, to shareholders of record as of August 8, 2008.
WSFS Financial Corporation is a $3.2 billion financial services company. Its principal subsidiary, Wilmington Savings Fund Society, FSB, currently operates 34 retail banking and loan production offices in Delaware, as well as Southeastern Pennsylvania and Northern Virginia, providing comprehensive banking services including wealth management and personal trust services. Other subsidiaries include WSFS Investment Group, Inc., Montchanin Capital Management, Inc. and 1st Reverse Financial Services, LLC. Founded in 1832, WSFS is one of the ten oldest banks in the United States continuously operating under the same name. For more information, please visit the Bank's website at www.wsfsbank.com.
Statements contained in this news release which are not historical facts, are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties which could cause actual results to differ materially from those currently anticipated due to a number of factors, which include, but are not limited to, factors discussed in documents filed by WSFS Financial Corporation with the Securities and Exchange Commission from time to time. The Corporation does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of the Corporation.
WSFS Financial Corporation
Stephen A. Fowle
Source: Globe Newswire (July 24, 2008 - 4:51 PM EDT)
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