WSFS Financial Corp. Q1 2010 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2010. WSFS Financial Corporation is a thrift holding company headquartered in Wilmington, Delaware, operating primarily through its subsidiary, Wilmington Savings Fund Society, FSB. The company serves the mid-Atlantic region with 41 banking offices, offering commercial and consumer lending, retail deposits, and wealth management services.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Net Interest Income | $29.34 million | $23.89 million |
| Net Interest Margin | 3.57% | 3.05% |
| Provision for Loan Losses | $11.41 million | $7.65 million |
| Noninterest Income | $11.14 million | $11.10 million |
| Noninterest Expenses | $29.63 million | $24.37 million |
| Net Income | $0.51 million | $2.94 million |
| Net Loss to Common Stockholders | $(0.18) million | $2.43 million |
| Diluted EPS | $(0.03) | $0.39 |
| Total Assets | $3.81 billion | $3.54 billion (Dec 31, 2009) |
| Total Deposits | $2.62 billion | $2.56 billion (Dec 31, 2009) |
| Allowance for Loan Losses | $57.05 million | $53.45 million (Dec 31, 2009) |
| Nonperforming Assets | $82.07 million | $82.16 million (Dec 31, 2009) |
Material Changes vs. Prior Period
- Profitability Decline: Net income dropped significantly from $2.94 million in Q1 2009 to $0.51 million in Q1 2010. On a common stock basis, the company reported a loss of $0.18 million compared to income of $2.43 million the prior year.
- Non-Routine ATM Loss: A major driver of the expense increase was a $4.49 million non-routine charge recorded in Q1 2010 related to embezzlement by an armored car vendor serving the Cash Connect (ATM) division. This charge is included in noninterest expenses.
- Increased Provisioning: The provision for loan losses increased by $3.76 million (49%) to $11.41 million, driven by risk grade migration in the commercial loan portfolio, charge-offs, and declining collateral values.
- Net Interest Margin Expansion: Despite the loss, the Net Interest Margin improved by 52 basis points to 3.57%, aided by effective deposit pricing management and a shift toward lower-cost retail deposits.
- Asset Quality: Nonperforming assets remained relatively stable at $82.07 million, representing 2.15% of total assets. Net charge-offs were $7.80 million for the quarter.
Outlook, Risks, and Management Commentary
- Capital Position: The Bank remains "well-capitalized" under regulatory standards. Stockholders' equity increased by $4.7 million, primarily due to a $5.1 million unrealized gain on available-for-sale securities recorded in other comprehensive income.
- Liquidity: Cash and cash equivalents increased to $323.0 million. Management cites strong liquidity sources including retail deposits, FHLB advances, and a portfolio of liquid mortgage-backed securities.
- ATM Recovery: Regarding the $4.5 million ATM loss, management expects a gain to be recorded in future periods as funds are recovered or recovery becomes certain. A court-appointed receiver's report indicated the vendor held assets of approximately $57 million against $68.6 million in payables.
- Interest Rate Risk: The company executed $125 million in intermediate-term FHLB advances to reduce sensitivity to rising interest rates. The one-year interest-sensitive gap is positive at $119.9 million.
- Regulatory & Tax: The company is participating in the FDIC's extended Transaction Account Guarantee (TAG) program. An IRS evaluation regarding a charitable contribution deduction from 2007 is expected to be completed in 2010.
Investor Verification Checklist
- ATM Loss Recovery: Monitor future filings for updates on the recovery of the $4.5 million loss from the armored car vendor and the timing of any expected gain recognition.
- Commercial Loan Quality: Verify the trend in risk grade migration within the commercial loan portfolio, which drove the increased provision for loan losses.
- Preferred Stock Obligations: Note the $692,000 in preferred stock dividends and accretion paid in Q1 2010, which contributed to the net loss allocable to common shareholders.
- Nonperforming Asset Trends: Track the ratio of nonperforming assets to total assets (currently 2.15%) and the coverage ratio of the allowance for loan losses to nonperforming assets (currently 56.13%).
- Deposit Mix: Confirm the sustainability of the shift from higher-cost wholesale funding to lower-cost retail deposits, which improved the net interest margin.