WSFS Reports Breakeven 4th Quarter and Full Year 2009 Net Income
Jan. 28, 2010 (PR Newswire) -- WILMINGTON, Del. -- WSFS Financial Corporation (Nasdaq: WSFS), the parent company of Wilmington Savings Fund Society, FSB (WSFS Bank), reported breakeven net income for the fourth quarter and a loss per common share of $0.09 (after preferred stock dividends), consistent with reported breakeven net income and loss per common share of $0.10 in the third quarter 2009 and an improvement from a net loss of $3.3 million and loss of $0.54 per common share in the fourth quarter of 2008. For the full year of 2009, WSFS reported net income of $663,000 and a loss of $0.30 per common share (after preferred stock dividends). This compares to net income of $16.1 million or $2.57 per diluted common share during 2008.
- Asset quality statistics improved over third quarter levels, including an $11.0 million decrease in non-performing assets (NPAs), with the ratio of NPAs to total assets improving 42 basis points (0.42%) to 2.19%. Total loan portfolio delinquencies also decreased 59 basis points (0.59%) from the third quarter of 2009 to 2.20% of total loans, while the ratio of allowance for loan losses to total gross loans increased seven basis points (0.07%) to 2.12%.
- Customer deposit growth continued at strong levels, increasing $81.9 million or 4% (16% annualized) from September 30, 2009 and $438.9 million or 26% from year end 2008.
- WSFS' net interest margin also continued its strong positive trend, increasing to 3.48% for the quarter ended December 31, 2009 from 3.35% in the quarter ended September 30, 2009 and 3.07% in the quarter ended December 31, 2008. Net interest income of $28.1 million increased $1.8 million, or 7% (27% annualized) from the third quarter of 2009 and $5.5 million, or 24% from the fourth quarter of 2008.
- Pre-tax, pre-provision net revenue increased $3.7 million, or 42% over the fourth quarter of 2008.
- WSFS' capital ratios remain at strong levels with a tangible common equity ratio of 6.31%, total risk-based capital ratio of 12.24%, Tier 1 capital ratio of 11.02% and core capital ratio of 8.67%. Tangible common book value per common share stood at $33.27 as of December 31, 2009, substantially the same as the $33.45 at the end of the third quarter of 2009.
- The Company maintained its quarterly common dividend of $0.12 per share.
Other notable items:
- " WSFS recorded a $12.7 million provision for loan losses (down from $15.5 in the third quarter 2009 and exceeding fourth quarter net charge-offs by $1.1 million), $1.8 million in additional write-downs of assets acquired through foreclosure (REO; up from $585,000 during the third quarter) and added $153,000 to its reserve for letters of credit (down from $346,000 added during the third quarter).
- " WSFS recorded $1.2 million in professional fees related to the Company's efficiency effort: Creative Opportunities for Revenues and Expenses (CORE) program. This expense accrual is for the portion of the consultant's work that is substantially performed, while the consultant's payments, expense savings and revenue enhancements will largely be realized in future periods.
- " WSFS completed the wind-down of 1st Reverse Financial Services, LLC (1st Reverse), contributing a loss of $363,000 or $0.03 per common share in the fourth quarter.
CEO outlook and commentary:
Mark A. Turner, President and CEO said, "This quarter, we are pleased with the results of the significant actions we have taken to manage our problem loans. During the quarter our nonperforming assets decreased 12% while we built our allowance for loan loss and improved our coverage ratios."
Mr. Turner continued, "As importantly, we took advantage of opportunities to grow and strengthen our business. Customer deposit growth continued its robust pace and brought total growth for 2009 to 26%, far outpacing our historical growth rate and peers' results. Solid increases in net interest margin and net interest income were the result of growth in core funding, thoughtful management of funding costs and improved pricing and terms from our lending relationships."
"The progress we have made in executing on our strategy of "Engaged Associates delivering Stellar Service to create Customer Advocates" explains our success in outpacing loan and deposit growth reported by our competitors, especially during this recession. In 2009, for the third year in a row, we were named by Wilmington's The News Journal as a Top 5 "Best in Business," and in 2009 this independent survey ranked us as the #1 best place to work in the State of Delaware. Additionally, independent survey results of our customers continue to score WSFS as "world class" in service and engagement, firmly in the top ten percent of all companies surveyed by Gallup, Inc."
Mr. Turner concluded, "We fully expect 2010 will be another challenging year for the economy, and for us, as the recognition of delinquencies, nonperforming assets and loan losses are likely to be uneven until the economy stabilizes. However, with strong capital and operating fundamentals we also anticipate continued opportunities to build on the successes we have had in serving our communities and growing our franchise value during a period when others are retrenching."
Fourth Quarter 2009 Discussion of Financial Results
Net interest margin continues to improve
The net interest margin for the fourth quarter of 2009 increased a strong 13 basis points (0.13%) to 3.48% from the 3.35% reported in the third quarter of 2009. Net interest income for the fourth quarter for 2009 was $28.1 million, a $1.8 million, or 7%, increase over the $26.3 million reported during the third quarter of 2009. Net interest income increased $5.5 million, or 24%, and the net interest margin increased 41 basis points (0.41%) from the fourth quarter of 2008.
The margin continues to benefit from the Company's growth in core funding and active management of deposit and wholesale funding costs. Also, consistent with the third quarter of 2009, while funding costs continue to decline, the Company's yield on its loan portfolio remained relatively stable.
Customer deposits increased $81.9 million from September 30, 2009
Total customer deposits (core deposits and customer time deposits) were $2.1 billion at December 31, 2009, and increased a robust $81.9 million or 4% (16% annualized) over levels reported at September 30, 2009. The linked-quarter increase in deposits was primarily in core deposits and included marked increases in money market, interest bearing and noninterest bearing DDA accounts.
Customer deposits increased $438.9 million, or 26%, over balances at December 31, 2008. The very strong growth was across all categories, and represented a notable shift to lower-cost core deposit accounts. Core deposits now represent 69% of total customer deposits compared to 62% a year ago.
The following table summarizes current customer deposit balances and composition compared to prior periods.
While the Company continues active lending in its marketplace, total net loans were $2.5 billion at December 31, 2009, a decrease of $30.8 million, or 1% (5% annualized) compared to the prior quarter end. This was primarily the result of residential first mortgage loan sales and a few large commercial payoffs. Residential first mortgage loans have continued to decline from previous periods because of the Company's strategy to originate then sell mortgage loans in the secondary market to generate fee income. Commercial and commercial real estate loans (together Commercial Loans) decreased by $9.6 million or less than 1% (2% annualized) from September 30, 2009 largely due to paydowns and net charge-offs. At the end of 2009, two large customers completed the sale of their businesses and paid-off $17.9 million in balances. These decreases were partially offset by normal business lending, which included $23.1 million in new relationships to the Bank and further solidifies the Company's market share in Delaware and contiguous areas.
Another factor contributing to the decrease in Commercial Loans was a desired decline in construction and land development loans (CLD). Total CLD loans as of December 31, 2009 were $194.4 million, or only 7.6% of total loans, a decrease of $24.6 million from September 30, 2009. Included in these totals were residential CLD loans, which decreased $13.8 million to $109.6 million, and are now only 4.3% of total loans.
Total net loans increased $35.3 million, or 1%, over December 31, 2008. This growth was primarily due to a $121.9 million, or 7% increase in Commercial Loans, including a decrease of $34.1 million in the Company's CLD portfolio. Partially offsetting the growth in Commercial Loans was a $68.2 million decrease in residential mortgage loans, due to the loan sale strategy discussed above. The Company's 2009 net loan growth compares very favorably to national net loan growth trends. Based on a recent Federal Reserve statistical release (FRB: H.8 Release dated January 15, 2010), net loans and leases of commercial banks in the United States decreased by 7% for the year ended December 31, 2009.
The following table summarizes the current loan balances and composition compared to prior periods.
Improvement in many credit quality statistics
Many of the Company's key asset quality statistics improved during the fourth quarter of 2009, including a decrease in both nonperforming assets and accruing and 90-day past due loans, an improvement in the ratio of nonperforming assets to total assets, a decrease in loan portfolio delinquency and improvements in the Company's coverage ratios (both the allowance for loan loss to total gross loans and allowance for loan loss to nonaccruing loans).
Nonperforming assets decreased to $82.2 million as of December 31, 2009 from $93.2 million as of September 30, 2009. The decrease of $11.0 million, or 12%, in the fourth quarter of 2009 was primarily due to net charge-offs and REO write-downs of $13.4 million and the resolution/paydown of $11.5 million of loans reported as nonperforming in prior periods, far exceeding the $13.9 million in new nonperforming assets added during the quarter. As a result, the ratio of nonperforming assets to total assets improved to 2.19%, a 42 basis point improvement over the 2.61% reported for the third quarter of 2009.
Nonperforming assets have increased by $46.4 million from the $35.8 million reported as of December 31, 2008. As previously reported, this increase is mainly a result of deterioration in the Company's CLD loan portfolio and reflects the continued protracted recession over the past year.
Total loan portfolio delinquency improved significantly to 2.20% of total loans as of December 31, 2009 compared to 2.79% as of September 30, 2009. This positive change was mainly due to increased paydowns, charge-offs and the proactive resolution of problem assets as the Company continues to add substantial resources and talent to its credit administration and loan resolution efforts.
Both early and late stage delinquencies contributed to this overall decline, as 30-89 day delinquencies went from 1.00% to 0.85% and greater than 90 day delinquencies went from 1.79% to 1.35% during the quarter. Improvement in early stage delinquencies was largely due to improvement in the CLD and consumer loan portfolios. Commercial and industrial and commercial real estate loans early stage delinquency rose slightly during the quarter and reflect the impact of the continued recession as it ripples through other customer and loan segments.
The following table summarizes current loan portfolio delinquency (contractually past due 30 days or greater) compared to prior periods.
Portfolio delinquency is actually less than nonperforming assets at December 31, 2009 as two large credits, that have been current, were moved to nonaccrual status in the second quarter of 2009.
Total net charge-offs in the fourth quarter of 2009 were $11.6 million, or 1.82% (annualized) of average loans, compared to $4.5 million, or 0.71% (annualized) for the third quarter of 2009 and down slightly from $11.9 million or 1.97% (annualized) for the fourth quarter of 2008. A significant portion of these charge-offs were construction loans which recorded net charge-offs of $6.1 million, or 13% (annualized) of the portfolio, many of which were previously identified problem assets that have been resolved or are moving towards final resolution. In addition, net charge-offs in the consumer and residential first mortgage loan portfolios were $1.1 million (1.46% annualized) and $401,000 (0.46% annualized), respectively for the fourth quarter of 2009 compared to $1.1 million and $257,000 during the third quarter of 2009.
During the fourth quarter of 2009 the Company recorded a $12.7 million provision for loan losses, mainly the result of charge-offs of consumer and certain nonperforming loans, with modest credit risk migration within the commercial loan portfolio also contributing to the provision.
At December 31, 2009, the Company's total securities portfolio had a carrying value of $727.5 million, up from the September 30, 2009 level of $573.4 million. The non-Agency MBS portfolio increased by $138.0 million due to the purchase of $172.0 million of securities, late in the fourth quarter, offset by prepayments and sale of one private label MBS at a small gain. The recently purchased MBS not only underwent significant internal pre-purchase due diligence using sophisticated models, but also were rated AAA during 2009, under heightened rating agency scrutiny. These purchases took advantage of market opportunity and improved the margin.
The Company recorded $86,000 of other-than-temporary impairment (OTTI) on one bond during the fourth quarter of 2009, which represents the Bank's only OTTI charge recognized for all of 2009 and 2008. At December 31, 2009, cumulatively 28 bonds, out of a total of 175, with a market value of $91.4 million have been downgraded below AAA-. Only two additional downgrades occurred during the fourth quarter of 2009. The Company's continuing independent stress tests of downgraded bonds projected losses of only $774,000 (79 basis points) in a "housing depression" scenario of an additional 20% decline in housing prices over the next 24-month horizon.
During the fourth quarter of 2009, the Company earned noninterest income of $11.9 million, a decrease of $2.6 million or 18%, compared to the third quarter of 2009. Four items make up the entire $2.6 million decrease during the quarter and include: (1) lower securities gains of $930,000; (2) a lower positive mark-to-market adjustment of $622,000 (on the BBB+ rated bond) during the fourth quarter of 2009 versus the prior quarter; (3) fees from mortgage banking activities were $606,000 lower during this quarter as a result of a discrete bulk loan sale that was completed during the third quarter of 2009; and (4) loan fee income was $445,000 lower during the fourth quarter of 2009 as the Company completed its wind-down of 1st Reverse.
Noninterest income increased $1.8 million in comparison to the fourth quarter of 2008. During the fourth quarter of 2009, debit/credit card & ATM fees and service charges on deposit accounts increased by $430,000 and $229,000, respectively, primarily due to increased volume and franchise growth. The rest of the increase was mainly from the mark-to-market adjustment on the BBB+ rated MBS, as a $1.4 million reduction in the market value was recorded during the fourth quarter of 2008 compared to a $124,000 increase in market value during the fourth quarter of 2009. Partially offsetting this increase were loan fees which decreased by $326,000 during 2009 due to the wind-down of 1st Reverse.
Noninterest expense for the fourth quarter of 2009 totaled $27.6 million, which was a $2.0 million increase from the third quarter of 2009. This increase was mainly due to an increase in professional fees during the quarter from the $1.2 million accrual of consulting expenses related the Company's CORE program. As discussed earlier, there is a timing difference between the period in which the consultant's expense is recognized and when the future revenue enhancement or expense savings are expected to be realized. In addition, during the fourth quarter of 2009, write-downs of REO and other credit related costs increased $1.4 million compared to the third quarter of 2009, related to additional deterioration in housing prices and appraisal values. Together, these two identified increases ($2.6 million) exceeded the quarter to quarter increase in noninterest expenses, as otherwise the Company has been closely managing expenses.
Noninterest expense for the fourth quarter increased $3.6 million from the fourth quarter of 2008. This increase is mainly due to the $1.2 million consulting expense discussed above and an $850,000 increase in FDIC insurance assessments as a result of higher industry insurance rates and significant increase in deposit balances. Also, during the fourth quarter of 2009, the Company recognized $1.1 million of additional write-downs on REO over the fourth quarter of 2008. In addition, the Company recorded increases in salaries, occupancy and data processing and operations expenses primarily due to the continued growth of the banking franchise during 2009.
The Company's capital decreased slightly by $1.2 million from September 30, 2009 levels and primarily reflects stock dividend payments combined with near breakeven earnings for the fourth quarter. The Bank's core capital ratio of 8.67%, Tier 1 capital ratio of 11.02% and total risk-based capital ratio of 12.24%, all are substantially in excess of "well-capitalized" regulatory benchmarks, the regulator's highest capital rating. Additionally, the Parent Company holds $30 million of funds, mostly from the $25 million common equity raised in the third quarter of 2009, that can be contributed as capital to the Bank to support its balance sheet and growth, or the repayment of Capital Purchase Plan (CPP) funds.
Tangible common book value per common share was $33.27 at December 31, 2009, and decreased slightly from the $33.45 reported at September 30, 2009. The Company's tangible common equity ratio was 6.31% at the end of the fourth quarter.
The Board of Directors approved a quarterly cash dividend of $0.12 per common share. This dividend will be paid on February 26, 2010, to shareholders of record as of February 12, 2010.
Niche businesses (included in the above results)
The Cash Connect division is a premier provider of ATM Vault Cash and related services in the United States. Cash Connect manages more than $308 million in vault cash in more than 10,000 non-bank ATMs nationwide and also operates 364 ATMs for WSFS Bank, by far the largest branded ATM network in Delaware. During the fourth quarter of 2009, Cash Connect reported pre-tax income of $1.3 million, compared to $1.5 million for the third quarter of 2009 and $1.3 million for the fourth quarter of 2008. Cash Connect's pre-tax income was $5.5 million for 2009, compared to $4.0 million in 2008 as a result of growth in the business, positive impact of floor rates and cost reduction initiatives at Cash Connect.
During the fourth quarter of 2009, 1st Reverse, the Company's national reverse mortgage subsidiary, reported a pre-tax loss of $363,000 as it completed its wind-down of operations. 1st Reverse recorded $219,000 in fee income and expenses of $582,000 during the quarter.
The combined impact of these niche businesses did not materially impact the consolidated quarterly comparisons for noninterest income or expenses.
The Company recorded a $307,000 income tax benefit in the fourth quarter of 2009 primarily from ongoing tax-free income. During the third quarter of 2009 the Company recorded a $222,000 income tax benefit. In the fourth quarter of 2008, the Company recorded a $2.6 million income tax benefit. Volatility in effective tax rates from quarter to quarter is expected.
4th Quarter 2009 Earnings Release Conference Call
Management will conduct a conference call to review this information at 1:00 p.m. Eastern Standard Time (EST) on Friday, January 29, 2010. Interested parties may listen to this call by dialing 1-800-860-2442. A rebroadcast of the conference call will be available one hour after the completion of the conference call, until 9:00 a.m. EST on February 8, 2010, by calling 1-877-344-7529 and using Conference ID 437256#.
About WSFS Financial Corporation
WSFS Financial Corporation is a $3.7 billion financial services company. Its primary subsidiary, Wilmington Savings Fund Society, FSB (WSFS Bank), operates 41 banking offices located in Delaware (36), Pennsylvania (4) and Virginia (1). WSFS Bank provides comprehensive financial services including trust and wealth management. Other subsidiaries include WSFS Investment Group, Inc. and Montchanin Capital Management, Inc. 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, which are based on various assumptions (some of which may be beyond the Company's control) are subject to risks and uncertainties and other factors which could cause actual results to differ materially from those currently anticipated. Such risks and uncertainties include, but are not limited to, those related to the economic environment, particularly in the market areas in which the Company operates; the volatility of the financial and securities markets, including changes with respect to the market value of our financial assets; changes in government regulation affecting financial institutions and potential expenses associated therewith; changes resulting from our participation in the CPP including additional conditions that may be imposed in the future on participating companies; and the costs associated with resolving any problem loans and other risks and uncertainties, 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.
SOURCE WSFS Financial Corporation
Source: PR Newswire (February 2, 2010 - 11:10 AM EST)
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