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EX-32 - EXHIBIT 32 - WSFS FINANCIAL CORPex-32.htm

 

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, 2009

 

 

 

OR

 

 

 

o

 

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

 

 

 

 

 

 

WSFS FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Delaware

 

22-2866913

(State or other jurisdiction of

 

(I.R.S. Employer

Incorporation or organization)

 

Identification Number)

 

 

 

500 Delaware Avenue, Wilmington, Delaware

 

19801

(Address of principal executive offices)

 

(Zip Code)

 

 

 

(302) 792-6000

Registrant’s telephone number, including area code:

 

 

 

Indicate by check markwhether 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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files), ____ Yes            _____ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o                 Accelerated filer x

Non-accelerated filer o                 Smaller reporting company [ ]

(Do not check if smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of November 2, 2009:

 

Common Stock, par value $.01 per share

 

7,076,641

(Title of Class)

 

(Shares Outstanding)

 

 

 

 

 


WSFS FINANCIAL CORPORATION

 

FORM 10-Q

 

INDEX

 

PART I. Financial Information

 

 

 

 

 

 

Page

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

Consolidated Statement of Operations for the Three and Nine Months

 

 

 

 

Ended September 30, 2009 and 2008

 

3

 

 

 

 

 

 

 

Consolidated Statement of Condition as of September 30, 2009

 

 

 

 

and December 31, 2008

 

4

 

 

 

 

 

 

 

Consolidated Statement of Cash Flows for the Nine Months Ended

 

 

 

 

September 30, 2009 and 2008

 

5

 

 

 

 

 

 

 

Notes to the Consolidated Financial Statements for the Three and Nine

 

 

 

 

Months Ended September 30, 2009 and 2008

 

6

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition

 

 

 

 

and Results of Operations

 

20

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

32

 

 

 

 

 

 

 

 

 

 

PART II. Other Information

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

32

 

 

 

 

 

Item 1A.

 

Risk Factors

 

32

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

 

 

 

 

 

Item 3.

 

Defaults upon Senior Securities

 

32

 

 

 

 

 

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

32

 

 

 

 

 

Item 5.

 

Other Information

 

33

 

 

 

 

 

Item 6.

 

Exhibits

 

33

 

 

 

 

 

Signatures

 

 

 

34

 

 

 

 

 

Exhibit 31.1

 

Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

35

 

 

 

 

 

Exhibit 31.2

 

Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

36

 

 

 

 

 

Exhibit 32

 

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

37

 

 

2

 

 


WSFS FINANCIAL CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2009

 

 

2008

 

2009

 

 

2008

 

 

 

(Unaudited)

 

 

 

(In Thousands, Except Per Share Data)

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

32,283

 

 

$

34,683

 

$

96,013

 

 

$

106,829

 

Interest on mortgage-backed securities

 

 

6,435

 

 

 

5,904

 

 

20,719

 

 

 

17,607

 

Interest and dividends on investment securities

 

 

412

 

 

 

376

 

 

1,044

 

 

 

916

 

Other interest income

 

 

 

 

 

374

 

 

 

 

 

1,340

 

 

 

 

39,130

 

 

 

41,337

 

 

117,776

 

 

 

126,692

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

 

7,578

 

 

 

8,936

 

 

23,430

 

 

 

30,288

 

Interest on Federal Home Loan Bank advances

 

 

4,221

 

 

 

7,235

 

 

14,366

 

 

 

23,559

 

Interest on trust preferred borrowings

 

 

389

 

 

 

747

 

 

1,449

 

 

 

2,548

 

Interest on other borrowings

 

 

649

 

 

 

1,112

 

 

1,967

 

 

 

3,654

 

 

 

 

12,837

 

 

 

18,030

 

 

41,212

 

 

 

60,049

 

Net interest income

 

 

26,293

 

 

 

23,307

 

 

76,564

 

 

 

66,643

 

Provision for loan losses

 

 

15,483

 

 

 

3,502

 

 

35,133

 

 

 

8,325

 

Net interest income after provision for loan losses

 

 

10,810

 

 

 

19,805

 

 

41,431

 

 

 

58,318

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposit service charges

 

 

4,401

 

 

 

4,354

 

 

12,494

 

 

 

12,326

 

Credit/debit card and ATM income

 

 

4,373

 

 

 

4,416

 

 

12,124

 

 

 

13,261

 

Securities gains (losses)

 

 

1,875

 

 

 

(5

)

 

3,185

 

 

 

1,115

 

Loan fee income

 

 

1,349

 

 

 

819

 

 

3,953

 

 

 

2,466

 

Mortgage banking activities, net

 

 

822

 

 

 

66

 

 

1,430

 

 

 

264

 

Investment advisory income

 

 

525

 

 

 

593

 

 

1,572

 

 

 

1,838

 

Bank owned life insurance income

 

 

238

 

 

 

548

 

 

677

 

 

 

1,578

 

Other income

 

 

955

 

 

 

893

 

 

2,871

 

 

 

3,013

 

 

 

 

14,538

 

 

 

11,684

 

 

38,306

 

 

 

35,861

 

Noninterest expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, benefits and other compensation

 

 

12,131

 

 

 

12,211

 

 

36,513

 

 

 

34,995

 

Occupancy expense

 

 

2,452

 

 

 

2,118

 

 

7,243

 

 

 

6,288

 

Equipment expense

 

 

1,829

 

 

 

1,575

 

 

5,133

 

 

 

4,571

 

FDIC expenses

 

 

1,517

 

 

 

227

 

 

5,885

 

 

 

331

 

Data processing and operations expenses

 

 

1,169

 

 

 

1,095

 

 

3,447

 

 

 

3,215

 

Professional fees

 

 

1,148

 

 

 

1,037

 

 

4,421

 

 

 

2,609

 

Marketing expense

 

 

852

 

 

 

952

 

 

2,410

 

 

 

3,020

 

Net costs of assets acquired through foreclosure

 

 

650

 

 

 

87

 

 

2,556

 

 

 

206

 

Other operating expense

 

 

3,821

 

 

 

3,720

 

 

13,290

 

 

 

9,894

 

 

 

 

25,569

 

 

 

23,022

 

 

80,898

 

 

 

65,129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income before taxes

 

 

(221

)

 

 

8,467

 

 

(1,161

)

 

 

29,050

 

Income tax (benefit) provision

 

 

(222

)

 

 

2,957

 

 

(1,786

)

 

 

9,594

 

Net income

 

 

1

 

 

 

5,510

 

 

625

 

 

 

19,456

 

Dividends on preferred stock and accretion of
discount

 

 

634

 

 

 

 

 

1,898

 

 

 

 

Net (loss) income allocable to common shareholders

 

$

(633

)

 

$

5,510

 

$

(1,273

)

 

$

19,456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.10

)

 

$

0.90

 

$

(0.20

)

 

$

3.16

 

Diluted

 

$

(0.10

)

 

$

0.88

 

$

(0.20

)

 

$

3.09

 

 

The accompanying notes are an integral part of these consolidated Financial Statements.

 

3

 

 


WSFS FINANCIAL CORPORATION

CONSOLIDATED STATEMENT OF CONDITION

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2009

 

 

2008

 

 

 

(Unaudited)

 

 

 

(In Thousands, Except Per Share Data)

 

Assets

 

 

 

 

 

 

 

 

Cash and due from banks

 

$

65,383

 

 

$

58,377

 

Cash in non-owned ATMs

 

 

223,646

 

 

 

189,965

 

Interest-bearing deposits in other banks

 

 

548

 

 

 

216

 

Total cash and cash equivalents

 

 

289,577

 

 

 

248,558

 

Investment securities held-to-maturity

 

 

998

 

 

 

1,181

 

Investment securities available-for-sale including reverse mortgages

 

 

46,399

 

 

 

48,507

 

Mortgage-backed securities available-for-sale

 

 

513,416

 

 

 

487,389

 

Mortgage-backed securities trading

 

 

12,059

 

 

 

10,816

 

Loans held-for-sale

 

 

12,224

 

 

 

2,275

 

Loans, net of allowance for loan losses of $52,385 at September 30, 2009
and $31,189 at December 31, 2008

 

 

2,497,752

 

 

 

2,441,560

 

Bank owned life insurance

 

 

60,015

 

 

 

59,337

 

Stock in Federal Home Loan Bank of Pittsburgh, at cost

 

 

39,305

 

 

 

39,305

 

Assets acquired through foreclosure

 

 

9,465

 

 

 

4,471

 

Premises and equipment

 

 

35,600

 

 

 

34,966

 

Accrued interest receivable and other assets

 

 

56,703

 

 

 

54,195

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

3,573,513

 

 

$

3,432,560

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

 

 

Noninterest-bearing demand

 

$

411,959

 

 

$

311,322

 

Interest-bearing demand

 

 

243,310

 

 

 

214,749

 

Money market

 

 

521,255

 

 

 

326,792

 

Savings

 

 

219,446

 

 

 

208,368

 

Time

 

 

466,961

 

 

 

450,056

 

Jumbo certificates of deposit – customer

 

 

201,239

 

 

 

195,846

 

Total customer deposits

 

 

2,064,170

 

 

 

1,707,133

 

Other jumbo certificates of deposit

 

 

78,427

 

 

 

103,825

 

Brokered deposits

 

 

334,280

 

 

 

311,394

 

Total deposits

 

 

2,476,877

 

 

 

2,122,352

 

 

 

 

 

 

 

 

 

 

Federal funds purchased and securities sold under agreements to repurchase

 

 

100,000

 

 

 

75,000

 

Federal Home Loan Bank advances

 

 

505,565

 

 

 

815,957

 

Trust preferred borrowings

 

 

67,011

 

 

 

67,011

 

Other borrowed funds

 

 

78,417

 

 

 

108,777

 

Accrued interest payable and other liabilities

 

 

42,603

 

 

 

26,828

 

Total liabilities

 

 

3,270,473

 

 

 

3,215,925

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Serial preferred stock $.01 par value, 7,500,000 shares authorized; issued 52,625 at September 30, 2009 and -0- at December 31, 2008

 

 

1

 

 

 

 

Common stock $.01 par value, 20,000,000 shares authorized; issued
16,655,153 at September 30, 2009 and 15,739,768 at December 31, 2008

 

 

166

 

 

 

157

 

Capital in excess of par value

 

 

166,440

 

 

 

87,033

 

Accumulated other comprehensive loss

 

 

(2,108

)

 

 

(12,613

)

Retained earnings

 

 

386,821

 

 

 

390,338

 

Treasury stock at cost, 9,580,569 shares at September 30, 2009 and December 31, 2008

 

 

(248,280

)

 

 

(248,280

)

Total stockholders’ equity

 

 

303,040

 

 

 

216,635

 

Total liabilities and stockholders’ equity

 

$

3,573,513

 

 

$

3,432,560

 

 

The accompanying notes are an integral part of these consolidated Financial Statements.

 

4

 

 


WSFS FINANCIAL CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2009

 

2008

 

 

 

(Unaudited)

 

 

 

(In Thousands)

 

Operating activities:

 

 

 

 

 

 

 

Net income

 

$

625

 

 

$ 19,456

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Provision for loan losses

 

 

35,133

 

 

8,325

 

Depreciation, accretion and amortization

 

 

5,191

 

 

4,775

 

(Increase) decrease in accrued interest receivable and other assets

 

 

(11,315

)

 

2,833

 

Origination of loans held-for-sale

 

 

(88,963

)

 

(22,257

)

Proceeds from sales of loans held-for-sale

 

 

79,815

 

 

22,928

 

Gain on mortgage banking activity

 

 

(1,430

)

 

(264

)

(Income) loss on mark to market adjustment on trading securities

 

 

(1,243

)

 

255

 

Securities gain from the sale of MasterCard, Inc. and Visa, Inc. common stock

 

 

(119

)

 

(1,370

)

Gain on sale of investments

 

 

(1,823

)

 

 

Stock-based compensation expense, net of tax benefit recognized

 

 

683

 

 

562

 

Excess tax benefits from share-based payment arrangements

 

 

 

 

(479

)

Increase in accrued interest payable and other liabilities

 

 

15,753

 

 

6,399

 

Loss on wind-down of 1st Reverse

 

 

1,589

 

 

 

Loss on sale of assets acquired through foreclosure and valuation adjustments

 

 

2,391

 

 

40

 

Increase in value of bank-owned life insurance

 

 

(678

)

 

(1,578

)

Increase (decrease) in capitalized interest, net

 

 

24

 

 

(20

)

Net cash provided by operating activities

 

 

35,633

 

 

39,605

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

Maturities of investment securities

 

 

18,300

 

 

14,195

 

Purchases of investment securities available-for-sale

 

 

(16,049

)

 

(24,000

)

Sales of mortgage backed securities available-for-sale

 

 

101,032

 

 

 

Repayments of mortgage-backed securities available-for-sale

 

 

114,330

 

 

60,079

 

Purchases of mortgage-backed securities available-for-sale

 

 

(222,456

)

 

(61,333

)

Repayments of reverse mortgages

 

 

207

 

 

1,247

 

Disbursements for reverse mortgages

 

 

(153

)

 

(173

)

Purchase of 1st Reverse Financial Services, LLC

 

 

 

 

(2,442

)

Purchases of loans

 

 

 

 

(2,776

)

Net increase in loans

 

 

(100,150

)

 

(107,117

)

Net decrease in stock of Federal Home Loan Bank of Pittsburgh

 

 

 

 

4,038

 

Sales of assets acquired through foreclosure, net

 

 

2,102

 

 

1,058

 

Proceeds from the sale of MasterCard, Inc. and Visa, Inc. common stock

 

 

119

 

 

1,370

 

Investment in premises and equipment, net

 

 

(4,979

)

 

(3,695

)

Net cash used for investing activities

 

 

(107,697

)

 

(119,549

)

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

Net increase in demand and savings deposits

 

 

274,379

 

 

28,148

 

Net increase in time deposits

 

 

19,158

 

 

150,314

 

Receipts from federal funds purchased & securities sold under agreement to repurchase

 

 

14,197,995

 

 

9,750,000

 

Repayments of federal funds purchased & securities sold under agreement to repurchase

 

 

(14,172,995

)

 

(9,750,000

)

Receipts from FHLB advances

 

 

23,862,548

 

 

66,992,555

 

Repayments of FHLB advances

 

 

(24,172,940

)

 

(67,135,207

)

Proceeds from issuance of unsecured bank debt

 

 

30,000

 

 

 

Dividends paid

 

 

(3,703

)

 

(2,090

)

Proceeds from issuance of preferred stock

 

 

52,625

 

 

 

Issuance of common stock and exercise of common stock options

 

 

26,016

 

 

2,115

 

Excess tax benefits from share-based payment arrangements

 

 

 

 

479

 

Purchase of treasury stock, net of reissuance

 

 

 

 

(2,426

)

Net cash provided by financing activities

 

 

113,083

 

 

33,888

 

Increase (decrease) in cash and cash equivalents

 

 

41,019

 

 

(46,056

)

Cash and cash equivalents at beginning of period

 

 

248,558

 

 

267,537

 

Cash and cash equivalents at end of period

 

$

289,577

 

$

221,481

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

Cash paid for interest during the period

 

$

36,375

 

$

59,164

 

Cash paid for income taxes, net

 

 

973

 

 

8,644

 

Loans transferred to assets acquired through foreclosure

 

 

9,049

 

 

4,175

 

Net change in other comprehensive income

 

 

10,505

 

 

(6,019

)

Net transfer of loans to loans held-for-sale

 

 

(622

)

 

247

 

 

The accompanying notes are an integral part of these consolidated Financial Statements.

 

5

 

 


WSFS FINANCIAL CORPORATION

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

(UNAUDITED)

 

1. BASIS OF PRESENTATION

 

Our consolidated Financial Statements include the accounts of WSFS Financial Corporation (“the Company”, “our Company”, “we”, “our” or “us”), Wilmington Savings Fund Society, FSB (“WSFS Bank” or the “Bank”) and Montchanin Capital Management, Inc. (“Montchanin”) and its wholly owned subsidiary, Cypress Capital Management, LLC (“Cypress”). We also have one unconsolidated affiliate, WSFS Capital Trust III (“the Trust”). WSFS Bank has a fully-owned subsidiary, WSFS Investment Group, Inc., which markets various third-party insurance products and securities products to Bank customers through WSFS’ retail banking system. WSFS Bank also owns a majority interest in 1st Reverse Financial Services, LLC (1st Reverse ), specializing in reverse mortgage lending. Founded in 1832, the Bank is one of the ten oldest banks continuously operating under the same name in the United States. We provide residential and commercial real estate, commercial and consumer lending services, as well as retail deposit and cash management services. In addition, we offer a variety of wealth management and personal trust services. Lending activities are funded primarily with retail deposits and borrowings. The Federal Deposit Insurance Corporation (“FDIC”) insures our customers’ deposits to their legal maximums. We serve customers from our main office, 37 retail banking offices, loan production offices and operations centers located in Delaware, southeastern Pennsylvania and Virginia and through our website at www.wsfsbank.com. The Wealth Management Services Division provides wealth management and personal trust services to customers.

 

Although our current estimates contemplate current conditions and in some circumstances how we expect them to change in the future, it is reasonably possible that in 2009, actual conditions may be worse than anticipated in those estimates, which could materially affect our results of operations and financial condition. Amounts subject to significant estimates are items such as the allowance for loan losses and lending related commitments, goodwill and intangible assets, post-retirement obligations, the fair value of financial instruments and other-than-temporary impairments. Among other effects, such changes could result in future impairments of investment securities, goodwill and intangible assets and establishment of allowances for loan losses and lending related commitments as well as increased post-retirement expense.

 

Our accounting and reporting policies conform with U.S. generally accepted accounting principles and prevailing practices within the banking industry for interim financial information and Rule 10-01 of the SEC’s Regulation S-X. Rule 10-01 of Regulation S-X does not require us to include all information and notes for complete financial statements and prevailing practices within the banking industry. Operating results for the three and nine month periods ended September 30, 2009 are not necessarily indicative of the results that may be expected for any future quarters or for the year ending December 31, 2009. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K/A for the year ended December 31, 2008, as filed with the Securities and Exchange Commission.

 

Accounting for Stock-Based Compensation

 

Stock-based compensation is accounted for in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718-10 (Formerly SFAS No. 123R, Share-Based Payment). We have stock options outstanding under two plans (collectively, “Stock Incentive Plans”) for officers, directors and Associates of the Company and its subsidiaries. After shareholder approval in 2005, the 1997 Stock Option Plan (“1997 Plan”) was replaced by the 2005 Incentive Plan (“2005 Plan”). No future awards may be granted under the 1997 Plan. The 2005 Plan will terminate on the tenth anniversary of its effective date, after which no awards may be granted. The number of shares reserved for issuance under the 2005 Plan is 862,000. At September 30, 2009, there were 108,206 shares available for future grants under the 2005 Plan.

 

The Stock Incentive Plans provide for the granting of incentive stock options as defined in Section 422 of the Internal Revenue Code as well as nonincentive stock options (collectively, “Stock Options”). Additionally, the 2005 Plan provides for the granting of stock appreciation rights, performance awards, restricted stock and restricted stock unit awards, deferred stock units, dividend equivalents, other stock-based awards and cash awards. All Stock Options are to be granted at not less than the market price of our common stock on the date of the grant. All Stock Options granted during 2009 vest in 25% per annum increments, start to become exercisable one year from the grant date and expire five years from the grant date. Generally, all awards become immediately exercisable in the event of a change in control, as defined within the Stock Incentive Plans.

 

6

 

 


A summary of the status of our Stock Incentive Plans at September 30, 2009 and September 30, 2008, respectively, and changes during the quarters then ended is presented below:

 

 

 

 

September 30, 2009

 

September 30, 2008

 

 

 

 

 

Weighted-

 

 

 

Weighted-

 

 

 

 

 

Average

 

 

 

Average

 

 

 

Shares

 

Exercise Price

 

Shares

 

Exercise Price

 

Stock Options:

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at beginning of period

 

 

756,888

 

$

42.52

 

 

704,997

 

$

43.27

 

Granted

 

 

 

 

 

 

7,000

 

 

58.00

 

Exercised

 

 

(13,660

)

 

16.81

 

 

(42,350

)

 

16.69

 

Forfeited

 

 

(6,960

)

 

59.59

 

 

(1,300

)

 

58.75

 

Outstanding at end of period

 

 

736,268

 

 

42.84

 

 

668,347

 

 

45.08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at end of period

 

 

459,004

 

 

40.47

 

 

394,972

 

 

36.08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

of awards granted

 

$

 

 

 

 

$

12.88

 

 

 

 

 

 

On July 1, 2009, 476,469 stock options were exercisable with an intrinsic value of $2.0 million. In addition, at July 1, 2009, there were 280,419 nonvested options with a weighted-average grant date fair value of $10.08 per option. During the third quarter of 2009, 3,155 options vested with no intrinsic value, and a weighted-average grant date fair value of $12.96 per option. Also during the quarter, 13,660 options were exercised with an intrinsic value of $197,000. There were 459,004 exercisable options remaining at September 30, 2009, with an intrinsic value of $1.7 million and a remaining weighted-average contractual term of 2.8 years. At September 30, 2009 there were 736,268 total stock options outstanding with an intrinsic value of $2.0 million and a remaining weighted-average contractual term of 3.0 years. During the third quarter of 2008, 42,350 options were exercised with an intrinsic value of $1.7 million and 7,171 options vested with a weighted-average grant date fair value of $13.79 per option.

 

A summary of the status of our Stock Incentive Plans at September 30, 2009 and September 30, 2008, respectively, and changes during the nine months then ended is presented below:

 

 

 

September 30, 2009

 

September 30, 2008

 

 

 

 

 

Weighted-

 

 

 

Weighted-

 

 

 

 

 

Average

 

 

 

Average

 

 

 

Shares

 

Exercise Price

 

Shares

 

Exercise Price

 

Stock Options:

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at beginning of period

 

 

675,887

 

$

44.98

 

 

722,582

 

$

43.14

 

Granted

 

 

83,921

 

 

23.33

 

 

10,150

 

 

55.19

 

Exercised

 

 

(13,660

)

 

16.81

 

 

(56,100

)

 

19.74

 

Forfeited

 

 

(9,880

)

 

59.50

 

 

(8,285

)

 

59.73

 

Outstanding at end of period

 

 

736,268

 

 

42.84

 

 

668,347

 

 

45.08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at end of period

 

 

459,004

 

 

40.47

 

 

394,972

 

 

36.08

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average fair value

 

 

 

 

 

 

 

 

 

 

 

 

 

of awards granted

 

$

5.42

 

 

 

 

$

11.86

 

 

 

 

 

 

Beginning January 1, 2009, 473,445 stock options were exercisable. During the nine months ended September 30, 2009, 7,631 options vested with no intrinsic value, and a weighted-average grant date fair value of $13.34 per option. Also during the first nine months of 2009, 13,660 options were exercised with an intrinsic value of $197,000. During the first nine months of 2008, 56,100 options were exercised with an intrinsic value of $2.0 million and 11,656 options vested with a weighted-average grant date fair value of $13.52 per option.

 

The total amount of compensation cost related to nonvested stock options as of September 30, 2009 was $1.3 million. This amount will be expensed over the weighted-average period of 2.2 years. We issue new shares upon the exercise of options.

 

7

 

 


During the third quarter of 2009, there were no options granted. During the first nine months of 2009, we granted 83,921 options with a five-year life and a four-year vesting period. The Black-Scholes option-pricing model was used to determine the grant date fair value of options. Significant assumptions used in the model included a weighted-average risk-free rate of return of 1.7% in 2009; an expected option life of three and three-quarter years; and an expected stock price volatility of 34.5% in 2009. For the purposes of this option-pricing model, a dividend yield of 2.1% was assumed.

 

During the third quarter of 2009 and 2008 we issued 60 and 40 shares, respectively, of restricted stock units. During the first three quarters of 2009 and 2008 we issued 235 and 132 shares, respectively, of restricted stock units. These awards vest over five years: 0% during the first two years, 25% at the end of each of the third and fourth years and 50% at the end of the fifth year. In addition, during the third quarter of 2009 we issued 2 shares of restricted stock units and during the first nine months of 2009 we issued 1,143 shares of restricted stock units, which vest over four years, 25% on each anniversary date.

 

During the third quarter of 2009 we issued 14 shares of restricted stock units. Additionally, for the first nine months of 2009 we issued 25,248 shares of restricted stock and 5,237 shares of restricted stock units. These awards vest over four years (25% per year on the first four anniversaries of the awards). In addition, for these stock awards made to certain executive officers, there are additional vesting limitations relating to these awards.  Under these additional limitations; 25% of the awards will become transferrable at the time of repayment of at least 25% of the aggregate financial assistance received by the Company under the Emergency Economic Stabilization Act of 2008 (“EESA”); an additional 25% of the shares granted (for an aggregate total of 50% of the shares transferrable) at the time of repayment of at least 50% of the aggregate financial assistance received by the Company under EESA; an additional 25% of the shares granted (for an aggregate total of 75% of the shares transferrable) at the time of repayment of at least 75% of the aggregate financial assistance received by the Company under EESA. The remainder of the shares will vest following the time of repayment of 100% of the aggregate financial assistance received by the Company under EESA. If the date specified has not occurred by the tenth anniversary of the grant date, the grantee shall forfeit all of the restricted shares. Finally, we issued 640 shares of restricted stock during the first nine months of 2009 that vest over four years, 25% on each anniversary date which are not subject to the additional EESA restrictions.

 

During the first nine months of 2009 we awarded 11,120 shares of Common Stock from this plan to our Board of Directors as part of their semi-annual retainer. These shares are not subject to a vesting period.

 

During 2008, we created a performance-based incentive program under the terms of the 2005 Plan. Under this program shares of WSFS stock may be awarded to certain members of management.

 

The Long-Term Performance-Based Restricted Stock Unit Program (“Long-Term Program”) will award up to an aggregate of 109,200 shares of WSFS stock to seventeen participants, only after the achievement of targeted levels of return on assets (“ROA”). Under the terms of the plan, if an annual ROA performance level of 1.20% is achieved, up to 54,900 shares will be awarded. If an annual ROA performance level of 1.35% is achieved, an additional 21,200 shares, or up to 76,100 shares will be awarded. If an annual ROA performance level of 1.50% or greater is achieved, an additional 33,100 shares, or up to 109,200 shares will be awarded. If these targets are achieved in any year up until 2011, the awarded stock will vest in 25% increments over four years.

 

We did not recognize any compensation expense related to this program in the first nine months of 2009. Compensation expense for the Long-Term Program was based on the closing stock price as of May 28, 2008 and will begin to be recognized once the achievement of target performance is considered probable.

 

At September 30, 2009 we had 108,206 shares available for issuance under the 2005 Plan. Full share awards, such as restricted stock, have the equivalence of four option grants for the purpose of calculating shares available for issuance. Under the provisions of the Long Term Program, if a performance level is achieved and there are insufficient shares available for grant, then we would have the option of granting the available shares with the remainder being paid in cash.

 

The impact of stock-based compensation (stock options, restricted stock units and restricted stock) for the three months ended September 30, 2009 was $343,000 pre-tax ($263,000 after tax) or $0.04 per diluted share, to salaries, benefits and other compensation. This compares to $285,000 pre-tax ($231,000 after tax) or $0.04 per diluted share for the three months ended September 30, 2008. The impact of stock-based compensation for the nine months ended September 30, 2009 was $1.1 million pre-tax ($896,000 after tax) or $0.14 per diluted share, to salaries, benefits and other compensation. This compares to $870,000 pre-tax ($703,000 after tax) or $0.11 per diluted share for the nine months ended September 30, 2008. The increase in the first nine months of 2009 over 2008 was mainly due to the timing of stock option grants. In prior years, stock options have been granted to Associates during the fourth quarter. The stock options that would have been awarded in the fourth quarter of 2008 were delayed until the first quarter of 2009. This delay and the effect of immediately expensing stock-based compensation to retirement eligible Associates accounted for the increase in compensation expense related to stock options.

 

 

8

 

 


 

2. EARNINGS PER SHARE

 

The following table shows the computation of basic and diluted earnings per share:

 

 

 

 

For the three months

 

 

For the nine months

 

 

 

 

ended September 30,

 

 

ended September 30,

 

 

 

 

2009

 

 

2008

 

 

2009

 

 

2008

 

 

 

 

(Unaudited)

 

 

 

 

(In Thousands, Except per Share Data)

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income allocable to common shareholders

$

(633

)

$

5,510

 

$

(1,273

)

$

19,456

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per share — weighted average shares

 

6,266

 

 

6,146

 

 

6,210

 

 

6,152

 

 

Effect of dilutive employee stock options

 

 

 

144

 

 

 

 

140

 

 

Denominator for diluted earnings per share — adjusted

 

 

 

 

 

 

 

 

 

 

 

 

 

weighted average shares and assumed exercise

 

6,266

 

 

6,290

 

 

6,210

 

 

6,292

 

 

Basic earnings per share

$

(0.10

)

$

.90

 

$

(0.20

)

$

3.16

 

 

Diluted earnings per share

$

(0.10

)

$

.88

 

$

(0.20

)

$

3.09

 

 

Outstanding common stock equivalents having no dilutive effect

 

826

 

 

375

 

 

881

 

 

380

 

 

For the three and nine months ended September 30, 2009, 68,818 and 64,798 employee stock options were excluded from the computation of diluted net loss per common share because the effect would have been antidilutive due to the net loss reported in these periods.

 

3. INVESTMENT SECURITIES

 

The following tables detail the amortized cost and the estimated fair value of the Company’s investment securities (which includes reverse mortgages):

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

(In Thousands)

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2009:

 

 

 

 

 

 

 

 

 

 

 

 

 

Reverse mortgages

 

$

(139

)

$

 

$

 

$

(139

)

U.S. Government and agencies

 

 

41,715

 

 

796

 

 

 

 

42,511

 

State and political subdivisions

 

 

3,935

 

 

92

 

 

 

 

4,027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

45,511

 

$

888

 

$

 

$

46,399

 

December 31, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

Reverse mortgages

 

$

(61

)

$

 

$

 

$

(61

)

U.S. Government and agencies

 

 

43,778

 

 

857

 

 

1

 

 

44,634

 

State and political subdivisions

 

 

4,020

 

 

 

 

86

 

 

3,934

 

 

 

$

47,737

 

$

857

 

$

87

 

$

48,507

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2009:

 

 

 

 

 

 

 

 

 

 

 

 

 

State and political subdivisions

 

$

998

 

$

 

$

31

 

$

967

 

 

 

$

998

 

$

 

$

31

 

$

967

 

December 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

State and political subdivisions

 

$

1,181

 

$

 

$

110

 

$

1,071

 

$

1,181

$

$

110

$

1,071

 

 

9

 

 


Securities with book values aggregating $39.5 million at September 30, 2009 were pledged as collateral for WSFS’ Treasury Tax and Loan account with the Federal Reserve Bank, Federal Reserve Credit Discount, securities sold under agreement to repurchase, and certain letters of credit and municipal deposits which require collateral. Accrued interest receivable relating to investment securities was $426,000 and $409,000 at September 30, 2009 and December 31, 2008, respectively.

 

The scheduled maturities of investment securities held-to-maturity and securities available-for-sale at September 30, 2009 were as follows:

 

 

 

Held-to-Maturity

 

Available-for Sale

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

 

 

Cost

 

Value

 

Cost

 

Value

 

 

 

(In Thousands)

 

 

 

 

 

 

 

 

 

 

 

Within one year (1)

 

$

 

$

 

$

6,689

 

$

6,744

 

After one year but within five years

 

 

630

 

 

630

 

 

38,572

 

 

39,398

 

After five years but within ten years

 

 

 

 

 

 

250

 

 

257

 

After ten years

 

 

368

 

 

337

 

 

 

 

 

 

 

$

998

 

$

967

 

$

45,511

 

$

46,399

 

 

 

(1) Reverse mortgages do not have contractual maturities. We have included reverse mortgages in maturities within one year.

 

There were no sales of investment securities classified as available-for-sale or held-to-maturity for the quarters ended September 30, 2009 or September 30, 2008. The cost basis for investment security sales is based on the specific identification method. Investment securities totaling $18.3 million were called by their issuers during the first nine months of 2009.

 

At September 30, 2009, we owned investment securities totaling $249,000 where the amortized cost basis exceeded fair value. Total unrealized losses on those securities were $31,000 at September 30, 2009. This temporary impairment is the result of changes in market interest rates subsequent to the purchase of the securities. The entire $249,000 have been impaired for 12 months or longer. We have determined that these securities are not other than temporarily impaired. The following table includes unrealized losses aggregated by category:

 

 

 

Less than 12 months

 

12 months or longer

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

Value

 

Loss

 

Value

 

Loss

 

Value

 

Loss

 

 

 

(In Thousands)

 

Held-to-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and political subdivisions

 

$

 

$

 

$

249

 

$

31

 

$

249

 

$

31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

State and political subdivisions

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S Government and agencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired investments

 

$

 

$

 

$

249

 

$

31

 

$

249

 

$

31

 

 

 

 

 

10

4. MORTGAGE-BACKED SECURITIES

 

The following tables detail the amortized cost and the estimated fair value of the Company’s mortgage-backed securities:

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

(In Thousands)

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2009:

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations

 

$

389,188

 

$

4,378

 

$

11,443

 

$

382,123

 

FNMA

 

 

54,546

 

 

1,188

 

 

3

 

 

55,731

 

FHLMC

 

 

31,290

 

 

857

 

 

 

 

32,147

 

GNMA

 

 

41,946

 

 

1,480

 

 

11

 

 

43,415

 

 

 

$

516,970

 

$

7,903

 

$

11,457

 

$

513,416

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average yield

 

 

4.89%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations

 

$

419,177

 

$

2,595

 

$

25,728

 

$

396,044

 

FNMA

 

 

35,578

 

 

932

 

 

 

 

36,510

 

FHLMC

 

 

30,477

 

 

830

 

 

 

 

31,307

 

GNMA

 

 

22,536

 

 

992

 

 

 

 

23,528

 

 

 

$

507,768

 

$

5,349

 

$

25,728

 

$

487,389

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average yield

 

 

5.30%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trading securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2009:

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations

 

$

12,059

 

$

 

$

 

$

12,059

 

 

 

$

12,059

 

$

 

$

 

$

12,059

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average yield

 

 

3.25%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2008:

 

 

 

 

 

 

 

 

 

 

 

 

 

Collateralized mortgage obligations

 

$

10,816

 

$

 

$

 

$

10,816

 

 

 

$

10,816

 

$

 

$

 

$

10,816

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average yield

 

 

3.47%

 

 

 

 

 

 

 

 

 

 

 

 

The portfolio of available-for-sale mortgage-backed securities consists of $513.4 million of both Agency and non-Agency bonds. All bonds were AAA-rated at time of purchase; $88.6 million are now rated below AAA.  Downgraded bonds were evaluated at September 30, 2009. The result of this evaluation shows no other-than-temporary impairment as of September 30, 2009. The weighted average duration of the mortgage-backed securities was 2.6 years at September 30, 2009.

 

At September 30, 2009, mortgage-backed securities with par values aggregating $249.3 million were pledged as collateral for retail customer repurchase agreements and municipal deposits. Accrued interest receivable relating to mortgage-backed securities was $2.1 million at both September 30, 2009 and December 31, 2008. From time to time, mortgage-backed securities are pledged as collateral for Federal Home Loan Bank (FHLB) borrowings and other obligations. The fair value of these pledged mortgage-backed securities at September 30, 2009 was $181.9 million.

 

During the first nine months of 2009, proceeds from the sale of mortgage-backed securities available-for-sale were $101.0 million, resulting in a gain of $1.8 million. The cost basis of all mortgage-backed securities sales is based on the specific identification method. There were no sales of mortgage-backed securities available-for-sale during the first nine months of 2008.

 

 

 

11

We own $12.4 million par value of SASCO RM-1 2002 securities which are classified as trading, of which, $1.4 million is accrued interest paid in kind. Because of seasoning and being well over-collateralized, we expect to recover all principal and interest. Based on FASB ASC 320, Investments – Debt and Equity Securities (“ASC 320”) (Formerly SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities) when these securities were acquired they were classified as trading. It was our intent to sell them in the near term. We have used the guidance under ASC 320 to provide a reasonable estimate of fair value in 2009. We estimated the value of these securities as of September 30, 2009 based on the pricing of BBB+ securities that have an active market through a technique which estimates the fair value of this asset using the income approach.

 

At September 30, 2009, we owned mortgage-backed securities totaling $202.5 million where the amortized cost basis exceeded fair value. Total unrealized losses on these securities were $11.5 million at September 30, 2009. This temporary impairment is the result of changes in market interest rates, a lack of liquidity in the mortgage-backed securities market and the reduction in credit ratings of 26 bonds out of 83. Most of these securities have been impaired for twelve months or longer. We have determined that these securities are not other-than-temporarily impaired. Quarterly, we evaluate the current characteristics of each of our mortgage-backed securities such as delinquency and foreclosure levels, credit enhancement, projected losses and coverage. In addition, we do not have the intent to sell, nor is it more likely-than not we will be required to sell these securities before we are able to recover the amortized cost basis. The following table lists the unrealized losses aggregated by category:

 

 

 

Less than 12 months

 

12 months or longer

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

Value

 

Loss

 

Value

 

Loss

 

Value

 

Loss

 

 

 

(In Thousands)

 

Available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMO

 

$

15,283

 

$

496

 

$

175,270

 

$

10,947

 

$

190,553

 

$

11,443

 

FNMA

 

 

9,381

 

 

3

 

 

 

 

 

 

9,381

 

 

3

 

FHLMC