WSFS Financial Corp. 10-Q Summary: Period Ended September 30, 2010
Business Context and Reporting Period
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 40 banking offices in Delaware, Pennsylvania, and Virginia. This report covers the quarterly and nine-month periods ended September 30, 2010. The company is an accelerated filer and is not a shell company.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2010 |
|---|---|---|
| Net Interest Income | $30.2 million | $90.2 million |
| Net Income | $8.2 million | $12.0 million |
| Net Income (Common Stockholders) | $7.5 million | $10.0 million |
| Diluted EPS | $0.94 | $1.33 |
| Provision for Loan Losses | $10.0 million | $32.0 million |
| Noninterest Income | $14.4 million | $38.0 million |
| Noninterest Expenses | $22.1 million | $79.5 million |
| Total Assets | $3.80 billion | $3.80 billion |
| Total Deposits | $2.67 billion | $2.67 billion |
| Allowance for Loan Losses | $64.5 million | $64.5 million |
| Stockholders' Equity | $369.7 million | $369.7 million |
Liquidity and Capital: Cash and cash equivalents totaled $334.8 million. The company reported a tangible common equity ratio of 8.04% and maintained "well-capitalized" status under regulatory guidelines, with a Tier 1 capital ratio of 11.55%.
Material Changes vs. Prior Period
- Profitability Surge: Net income for the nine months ended September 30, 2010, was $12.0 million, a significant improvement from $0.6 million in the same period in 2009. Diluted EPS improved from a loss of $0.20 to $1.33.
- Net Interest Margin Expansion: The net interest margin increased to 3.61% for the nine months ended September 30, 2010, up 38 basis points from 3.23% in the prior year period. This was driven by a decline in the cost of interest-bearing liabilities.
- Expense Recovery: Noninterest expenses decreased by $1.4 million year-over-year for the nine-month period. This was primarily due to a full recovery of a $4.5 million loss related to an armored car vendor embezzlement incident recorded in Q1 2010.
- Asset Quality: Nonperforming assets increased to $88.5 million (2.33% of total assets) from $82.2 million (2.19%) at year-end 2009. This increase was driven by new nonperforming commercial and retail mortgage loans, partially offset by a reduction in nonperforming construction loans.
- Loan Portfolio Mix: Total loans decreased slightly by $6.6 million. Construction loans decreased by $47.7 million, while commercial and industrial loans increased by $68.0 million.
Guidance, Outlook, and Risks
- Acquisition Activity: On June 24, 2010, the company entered into an agreement to acquire Christiana Bank & Trust Company (CBT) for $34.5 million in cash. The transaction, expected to close in Q4 2010, is projected to add approximately $161 million in deposits and $115 million in performing loans.
- Capital Raising: In August 2010, the company completed an underwritten public offering of 1.37 million shares of common stock, raising $47.1 million net of costs.
- Regulatory Environment: The company noted the impact of the Dodd-Frank Act and Regulation E (overdraft fees), which may result in higher compliance costs and reduced revenues. The FDIC's Transaction Account Guarantee (TAG) program was extended to December 31, 2010.
- Interest Rate Risk: The company maintains a positive interest-sensitive gap. Management monitors interest rate risk using net portfolio value analysis, projecting a 3% increase in net interest margin if rates rise by 100 basis points.
- Unusual Items: The $4.5 million ATM recovery was a non-recurring item that significantly boosted Q3 earnings. The company also noted a $1.6 million charge in 2009 related to the wind-down of its reverse mortgage subsidiary, 1st Reverse, which is no longer a factor in 2010.
Investor Verification Checklist
- ATM Recovery Sustainability: Verify that the $4.5 million recovery of the Q1 2010 loss is fully realized and not subject to future clawbacks.
- Acquisition Integration: Monitor the closing of the Christiana Bank & Trust acquisition and the associated integration costs and synergies.
- Nonperforming Asset Trends: Track the ratio of nonperforming assets to total assets, which rose to 2.33%, and the specific allowance coverage for these assets.
- Regulatory Impact: Assess the long-term financial impact of the Dodd-Frank Act and Regulation E on fee income and compliance expenses.
- Loan Portfolio Concentration: Review the shift in loan mix away from construction loans toward commercial and industrial loans and the associated credit risk profile.