WSFS Financial Corp. 2009 Annual Report (10-K) Summary
Business Context and Reporting Period
This report covers the fiscal year ended December 31, 2009. WSFS Financial Corporation is a savings and loan holding company headquartered in Wilmington, Delaware, operating primarily through its subsidiary, Wilmington Savings Fund Society, FSB ("WSFS Bank"). The company operates 41 banking offices in Delaware, Pennsylvania, and Virginia. Its core business model focuses on commercial lending funded by customer deposits, supplemented by wealth management services (WSFS Trust) and ATM cash management services (Cash Connect).
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Net Income | $663,000 | $16,136,000 |
| Net Loss to Common Shareholders | $(1,927,000) | $16,136,000 |
| Earnings Per Share (Diluted) | $(0.30) | $2.57 |
| Total Assets | $3,748.5 million | $3,432.6 million |
| Total Loans (Net) | $2,479.1 million | $2,443.8 million |
| Total Deposits | $2,561.9 million | $2,122.4 million |
| Stockholders' Equity | $301.8 million | $216.6 million |
| Net Interest Margin | 3.30% | 3.13% |
| Efficiency Ratio | 69.56% | 65.36% |
| Return on Average Assets | 0.02% | 0.50% |
| Return on Average Equity | 0.24% | 7.30% |
Material Changes vs. Prior Period
- Profitability Decline: Net income dropped significantly from $16.1 million in 2008 to $0.7 million in 2009, resulting in a net loss to common shareholders of $1.9 million. This was primarily driven by a substantial increase in the provision for loan losses and non-routine expenses.
- Provision for Loan Losses: The provision increased to $47.8 million in 2009 from $23.0 million in 2008, reflecting credit risk migration, collateral depreciation (particularly in construction and land development), and increased net charge-offs ($25.6 million vs. $17.1 million).
- Nonperforming Assets: Nonperforming assets rose to $82.2 million (2.19% of total assets) from $35.8 million (1.04% of total assets). Nonaccruing loans increased to $65.9 million, with significant increases in construction and commercial loan categories.
- Deposit Growth: Total deposits grew by 21% ($439 million) to $2.56 billion, driven by strong core deposit growth and the acquisition of branches from Sun National Bank in late 2008.
- Capital Infusion: Stockholders' equity increased by 39% to $301.8 million, largely due to the sale of $52.6 million in preferred stock to the U.S. Treasury under the Capital Purchase Program (CPP) and a $25.0 million private placement of common stock.
Guidance, Outlook, Risks, and Unusual Items
- Regulatory Action: In December 2009, WSFS Bank entered into an informal Memorandum of Understanding (MOU) with the Office of Thrift Supervision (OTS). The bank agreed to reduce criticized assets, revise credit administration policies, and limit brokered deposits.
- Unusual Items: Noninterest expenses included approximately $6.1 million in non-routine charges:
- $1.9 million charge for the wind-down of the 1st Reverse Financial Services subsidiary.
- $1.7 million FDIC special assessment.
- $1.5 million charge related to fraudulent wire transfer activity.
- $0.95 million in due diligence expenses for a terminated acquisition.
- Subsequent Event: In February 2010, the company was advised of a potential fraud involving an armored car company executive, with preliminary estimates of missing funds around $4.8 million. The company is investigating potential recoveries through insurance and customer reimbursements.
- Risks: The company faces risks related to the prolonged recession, declining real estate values, and the concentration of its loan portfolio in the Delaware and mid-Atlantic region. There is also risk associated with the potential impairment of its investment in Federal Home Loan Bank (FHLB) stock.
Key Facts for Investor Verification
- Asset Quality: Verify the adequacy of the allowance for loan losses ($53.4 million) given the rapid increase in nonperforming assets and the specific concentration in construction and land development loans.
- Regulatory Compliance: Monitor the bank's progress in resolving the issues outlined in the OTS Memorandum of Understanding to avoid formal regulatory enforcement actions.
- Subsequent Loss Exposure: Track the resolution of the February 2010 armored car fraud incident to determine the final financial impact and the likelihood of full recovery.
- Capital Structure: Note the restrictions on dividends and stock repurchases imposed by the U.S. Treasury's Capital Purchase Program until the preferred stock is repaid.
- Non-Routine Expenses: Assess whether the $6.1 million in non-routine charges in 2009 represents a one-time event or a trend in operational risk management.