Revenue Increased by 8% Over the Same Quarter of 2010
Strong Growth in Deposits, C&I Lending and Investment in Market Opportunities
WILMINGTON, Del., April 28, 2011 (GLOBE NEWSWIRE) -- WSFS Financial Corporation (Nasdaq:WSFS), the parent company of WSFS Bank, reported net income of $4.2 million or $0.40 per diluted common share for the first quarter of 2011 compared to net income of $2.1 million or $0.16 per diluted common share for the fourth quarter of 2010 and net income of $514,000 or a loss of $0.03 per common share (after subtracting preferred share dividends) for the first quarter of 2010.
Highlights:
- Customer funding growth continued at strong levels, increasing $71.1 million, or 3% (11% annualized), from December 31, 2010 and $359.7 million, or 15%, from March 31, 2010.
- Commercial and Industrial ("C&I") lending accelerated, increasing $48.9 million, or 4% (16% annualized), from December 31, 2010, reflecting the addition of ten seasoned lenders in Delaware and Southeast Pennsylvania markets over the past year.
- Total revenue for the first quarter of 2011 grew 3% (not annualized) from the fourth quarter of 2010 and 8% compared to the first quarter of 2010.
- Fee income now represents 31% of total revenue, compared to 28% in the fourth quarter of 2010 and 27% for the first quarter of 2010 as a result of strong growth in fiduciary and investment management income.
- Leading asset quality indicators continued to show stable to improved trends as total Problem Loans (all criticized, classified and nonperforming loans and other real estate owned) decreased an additional 6% during the quarter, and now represent less than 10% of total loans. Portfolio delinquencies (which include delinquent nonperforming loans) remained under 3%.
- The total of the provision for loan losses, loan workout expense, OREO expense and letter of credit reserve (together "Credit Costs") decreased $3.1 million from $11.5 million in the fourth quarter of 2010 to $8.4 million in the first quarter 2011.
- WSFS announced a quarterly common dividend of $0.12 per share.
CEO outlook and commentary:
Mark A. Turner, President and CEO, said, "The first quarter of 2011 results began to reflect our significant acceleration of investment in Associates, branch network and infrastructure to continue to gain market share during a period of unprecedented banking disruption in Delaware and southeastern Pennsylvania. This quarter also reflected our first full quarter with Christiana Trust as part of our franchise, significantly improving and diversifying our fee income base.
"Growth in deposits, almost exclusively core deposits, continued at a double-digit pace despite seasonal draws on public fund accounts. This growth was aided by an anniversary savings promotion that attracted more than $90 million in balances from new and existing customers. And, even though bad weather further dampened the winter's slow season, lending picked up considerably beginning in March as commercial customers continued to switch to WSFS. This growth was supported by significant investment in our franchise including the acceleration of investments originally planned for future years in order to capitalize on the extraordinary opportunities we currently see in our markets. Given our market place dynamics, this is literally an every-hundred-year opportunity for us. It is a time to invest boldly and wisely for the future. We believe we are doing both.
"Asset quality trends continued their dichotomy this quarter, which is expected at this phase of the credit cycle. The good news is that many of our customers who were affected by the weak economy have been able to successfully adjust to the environment. As a result, an increasing number of loans are migrating off of our problem loan list and fewer loans are becoming new problem loans. However, certain previously identified problem loans were moved to nonaccrual status as the third straight year of weak economic conditions further impacted a few already stressed borrowers. For the most part, these loans had been identified as problems, in many cases several quarters ago, and have been appropriately reserved for.
"The combination of these factors led to a significant decrease in overall credit costs. Costs related to nonperforming assets, including loan workout and OREO expenses, increased from recent quarters. However, the costs related to new problem loans and loan migration between risk rating categories improved significantly, and resulted in a significantly lower provision for loan losses.
"Overall, as our results show, we are fervently pursuing current market opportunities which we believe will build long-term franchise value."
First Quarter 2011 Discussion of Financial Results
Net interest margin
The net interest margin for the first quarter of 2011 was 3.56%, a seven basis point decrease from 3.63% reported for the fourth quarter of 2010. Net interest income for the first quarter was $30.3 million, a slight decrease from the $30.5 million reported during the fourth quarter of 2010. Net interest income increased $911,000, or 3%, and the net interest margin decreased one basis point, over the amounts reported for the first quarter of 2010.
The linked-quarter decrease in net interest margin and net interest income is the result of a number of factors. While earning asset yields and interest-bearing liability costs both decreased, asset yields declined slightly faster. Reinvestment of proceeds from mortgage-backed securities (MBS) sales and pay-downs over the past several months was at significantly lower rates, reflecting the short duration, strong credit quality and current market rates for our MBS investments. Further, reported yields on commercial loans declined in comparison to the prior quarter, in large part due to adjustments such as nonaccrual interest adjustments made during the period. In addition, deposit costs were impacted by an increase in the rate paid for savings accounts, as a result of the Company's successful anniversary savings account promotion. Finally, the linked-quarter comparison was negatively impacted by the fewer number of days in this quarter.
Customer funding
The Company's customer funding continued to grow during the first quarter of 2011, with strong growth in core deposits outpacing seasonal declines in municipal deposits.
Total customer funding was $2.7 billion at March 31, 2011, an increase of $71.1 million, or 3% (11% annualized), over levels reported at December 31, 2010. The largest single contributor to this growth was a $111.5 million increase in savings accounts which included a promotional account issued in conjunction with the Company's anniversary. In addition, noninterest and interest-bearing DDAs increased a significant $37.1 million and $10.2 million, respectively from December 31, 2010. Offsetting this growth was the expected seasonal decrease in a limited number of public fund accounts (primarily school districts) of $51.4 million, which were predominantly held in money market accounts.
Customer funding increased $359.7 million, or 15%, over balances at March 31, 2010. This growth was primarily in core deposit accounts and included a $173.8 million increase from the Christiana Bank & Trust acquisition in December of 2010.
The following table summarizes current customer funding balances and composition compared to prior periods.
Net loans
The Company experienced accelerated growth in our C&I loan portfolio. Overall loan growth was positive, but tempered by ongoing intentional reductions in construction loans and residential mortgages.
Total net loans were $2.6 billion at March 31, 2011, an increase of $16.2 million compared to the prior quarter end, mainly due to an increase in C&I loans which grew $48.9 million, or 16% annualized, from December 31, 2010. C&I loan growth accelerated as the Company capitalized on the disruption in the Delaware and southeastern Pennsylvania markets, aided by the recent hiring of seasoned lending professionals. As in recent quarters, this growth was offset by intentional reductions of $19.5 million in residential mortgage loans and $11.6 million in construction loan balances during the first quarter of 2011. Construction loans now total only $129.0 million, or less than 5% of gross loans, including residential construction loans which total $59.9 million, or only 2% of gross loans.
Net loans increased $127.3 million compared to March 31, 2010. This increase included $106.2 million of loans acquired from the Christiana Bank & Trust acquisition in the fourth quarter of 2010. Excluding these balances, total commercial loans grew $87.3 million, or 5%, over the prior year despite the intentional decline of $72.8 million, or 36%, in construction loans. Residential mortgage loans also decreased $46.1 million over the year as a result of the Company's originate-and-sell strategy.
The following table summarizes current loan balances and composition compared to prior periods.
Asset quality statistics
Leading asset quality indicators continued to be stable with some showing improvement. Indicators such as Problem Loans (all criticized, classified and nonperforming loans and other real estate owned) continued to decrease and delinquency remained relatively stable at less than 3%. In addition, during the first quarter of 2011, the loan loss provision declined significantly to $5.9 million from $9.9 million in the fourth quarter of 2010 and $11.4 million in the first quarter of 2010 and reflected improvement in the overall credit quality of the loan portfolio, fewer Problem Loans and a net improvement in loan risk migration. However, lagging indicators continued to show volatility as the Company experienced an increase in its nonperforming assets and loan workout and OREO costs on its previously identified problem assets.
Problem Loans decreased by 6% in the current quarter and now stand at less than 10% of total loans. This represents a 24% decrease from their cycle high point in the first quarter of 2010, as the Company has added significant resources during the cycle to proactively manage resolution of problem assets.
Total loan portfolio delinquencies (loans contractually past due 30 days or greater, including delinquent nonperforming loans) remained under 3% at 2.83% of total loans, or $75.0 million, as of March 31, 2011, compared to $63.0 million, or 2.39%, as of December 31, 2010. The increase was primarily in early stage delinquencies which increased from $26.5 million, or 1.00%, to $40.8 million, or 1.54%, during the quarter. More than half of this increase was from one problem loan that had been identified and placed on nonaccrual status in a prior period. Late-stage delinquencies (loans contractually past due 90 days or greater) improved by nine basis points from 1.38% to 1.29% of total loans during the same period.
The following table summarizes current loan portfolio delinquency compared to prior periods.
The ratio of nonperforming assets to total assets increased to 2.58% in the first quarter of 2011 from 2.35% in the fourth quarter of 2010. Nonperforming assets increased to $101.8 million as of March 31, 2011 from $92.9 million as of December 31, 2010. The linked-quarter increase included three land loans which were placed on nonaccrual status and represented nearly half of the Company's new nonaccrual loans during the quarter. These inflows outpaced disposition efforts during the seasonally slower winter months.
During the first quarter of 2011, net charge-offs of $10.2 million, or 1.56% (annualized), decreased from $14.0 million, or 2.21% (annualized), reported in the fourth quarter of 2010. As anticipated, and consistent with the fourth quarter of 2010, net charge-offs continued to exceed the provision for loan losses as the Company utilized its reserves built in prior periods. The decrease in the provision for loan losses in the first quarter of 2011 compared to the fourth quarter of 2010 and the first quarter of 2010 was primarily due to lower Problem Loans and better net loan migration activity during the periods and represents our sixth straight quarterly decline in loan loss provision.
The ratio of the allowance for loan losses to total gross loans decreased 19 basis points to 2.11% as of March 31, 2011. This decline reflects a decrease in Problem Loan levels and the utilization of the reserves built in prior quarters for the resolution of previously identified problem loans.
Investments
At March 31, 2011, the Company's securities portfolio had a carrying value of $735.3 million, compared to $766.5 million at December 31, 2010. The portfolio consists of high-quality securities with only one small downgraded security, at a value of $116,000. The duration of the overall portfolio is short at 2.5 years. During the first quarter of 2011, the Company sold $46.1 million of mortgage-backed securities as part of its ongoing portfolio management and recognized $415,000 in net securities gains. The portfolio yield has declined from 4.25% to 3.95% as pay-downs and sales from the past several months were reinvested in short duration, high quality mortgage-backed securities with significantly lower market yields.
Noninterest income
In the first quarter of 2011, the Company continued to show growth in its noninterest income despite seasonality, the negative impact of Regulation E changes (overdraft charges) to deposit service charges, a recent decline in mortgage banking activity and the impact of fewer days in the quarter.
During the first quarter of 2011, the Company earned noninterest income of $13.6 million compared to $12.1 million in the fourth quarter of 2010. Excluding the impact of securities gains and losses, noninterest income increased by $118,000, or 1%, over the previous period. The linked-quarter comparison was favorably impacted by an increase of $1.2 million in fiduciary and investment management income during the first quarter of 2011, reflecting the first full quarter of income from the integration of Christiana Trust on December 3, 2010. Offsetting this increase, were decreases of $906,000 in mortgage banking activities and loan fees as a result of lower mortgage refinancing activity during the first quarter of 2011. Deposit service charges also showed a seasonal decrease of $294,000 compared to the fourth quarter of 2010.
Noninterest income increased $2.5 million from the $11.1 million reported during the first quarter of 2010. Excluding the impact of securities gains, noninterest income increased by $2.1 million, or 19%. Noninterest income for the first quarter of 2011 included $1.8 million from Christiana Trust. Noninterest income increased over first quarter 2010 levels, despite the changes in Regulation E during the second half of 2010. The increase included credit/debit card and ATM fees, which improved by $370,000 due to increased transaction volume and growth in our Cash Connect ATM division. Mortgage banking activities also increased by $295,000 over the previous year. Finally, service charges on deposit accounts decreased by only $315,000 as growth in deposit accounts and proactive actions taken by the Company almost fully offset the impact of the changes in banking regulations (Reg E).
Noninterest expense
The Company accelerated significant investments originally planned for the future to take advantage of what it believes is a current window of market share opportunity from the significant disruption in its markets. This led to an increase in expenses for compensation, marketing and infrastructure. It is anticipated that additional investments will be made as the Company continues to execute on its growth strategies throughout the year.
Noninterest expense for the first quarter of 2011 totaled $31.4 million compared to $29.9 million in the fourth quarter of 2010. Included in these totals were $334,000 of Christiana Bank & Trust acquisition integration costs during the first quarter of 2011 and $1.4 million in the fourth quarter of 2010. Excluding these non-routine items, noninterest expenses increased by $2.6 million, or 9% compared to the fourth quarter of 2010. This increase included an $816,000 increase in loan workout and OREO expenses during the first quarter. In addition, approximately $1.3 million of the remaining increase was comprised of costs related to growth of the franchise, including the first full quarter with Christiana Trust integrated into the Company, growth in the branch franchise and the addition of seasoned commercial relationship managers. The remaining increase represents normal expense growth of approximately 2%.
Noninterest expense for the first quarter of 2011 increased to $31.4 million from $29.6 million in the same period of 2010. The first quarter of 2011 included non-routine expenses related to the integration of Christiana Bank & Trust of $334,000. The first quarter of 2010 included a $4.5 million charge for an ATM fraud loss (that was fully recovered in the third quarter of 2010). Excluding these non-routine costs, noninterest expenses increased by $5.9 million, or 24%, over the first quarter of 2010. Similar to the linked-quarter comparison, the first quarter of 2011 included a $1.4 million increase in loan workout and OREO expenses. An additional $2.7 million of the increase was related to the Company's growth efforts and included ongoing Christiana Trust expenses, seven new, relocated or renovated branches and the addition of ten seasoned commercial relationship managers. Incentive compensation awards and share-based compensation increased $1.0 million as the Company's performance significantly improved over prior periods. The remaining increase represents normal expense growth of 4% over the previous year and included an increase in support costs and the addition of experienced credit, asset disposition and compliance professionals during the year.
Capital management
The Company's capital increased by $3.1 million to $370.9 million at March 31, 2011, mainly the result of the earnings for the first quarter of 2011.
Tangible common book value per share was $33.15 at March 31, 2011, a $0.12 increase from $33.03 reported at December 31, 2010. The Company's tangible common equity ratio increased nine basis points to 7.27% at the end of the first quarter.
At March 31, 2011, the Bank's core capital ratio of 9.61%, Tier 1 capital ratio of 12.44% and total risk-based capital ratio of 13.69%, all increased from last quarter as a result of first quarter 2011 earnings. An additional $19 million in cash remains at the holding company as of March 31, 2011 to support the parent company's cash needs. All Bank capital ratios continue to maintain a substantial cushion in excess of "well-capitalized" regulatory benchmarks, the highest regulatory capital level.
The Board of Directors approved a quarterly cash dividend of $0.12 per common share. This dividend will be paid on May 27, 2011, to shareholders of record as of May 13, 2011.
Niche businesses (included in above results)
The Cash Connect division is a premier provider of ATM vault cash and related services in the United States. Cash Connect services more than $346 million in vault cash in more than 10,500 non-bank ATMs nationwide and also operates 380 ATMs for WSFS Bank, which includes the largest branded ATM network in Delaware. Cash Connect recorded $3.3 million in net revenue (fee income less funding costs) during the first quarter of 2011 which was primarily comprised of interest rate-sensitive bailment fees. This represented an increase of $126,000 compared to the fourth quarter of 2010 and an increase of $217,000 compared to the first quarter of 2010 as a result of growth in the division. Noninterest expenses were $2.2 million during the first quarter of 2011, an increase of $307,000 from the fourth quarter of 2010 and an increase of $636,000 from the first quarter of 2010 (excluding the previously disclosed ATM fraud loss of $4.5 million in the first quarter of 2010, recovered in the third quarter of 2010), due to growth and increased insurance costs related to this business. As a result, Cash Connect reported pre-tax income of $1.1 million for the first quarter of 2011, $1.3 million for the fourth quarter of 2010 and $1.5 million for the first quarter of 2010 (adjusted for the ATM fraud loss and later recovery).
Income taxes
The Company recorded a $2.4 million income tax provision in the first quarter of 2011 compared to an income tax provision of $715,000 in the fourth quarter of 2010. The Company's effective tax rate was 36.2% for the first quarter of 2011 and 25.6% during the fourth quarter of 2010. The fourth quarter 2010 effective tax rate reflects the impact of the Company's tax-exempt income on lower pre-tax income.
The tax benefit in the first quarter of 2010 of $1.1 million included $899,000 from a decrease in the Company's income tax reserve due to the expiration of the statute of limitations on certain tax items. The Company's effective tax rate, excluding the statute of limitations related benefit, was 31.2% in the first quarter of 2010.
First Quarter 2011 Earnings Release Conference Call
Management will conduct a conference call to review this information at 1:00 p.m. Eastern Daylight Time (EDT) on Friday, April 29, 2011. Interested parties may listen to this call by dialing 1-877-312-5857. A rebroadcast of the conference call will be available two hours after the completion of the conference call, until May 6, 2011, by calling 1-800-642-1687 and using Conference ID 62299992.
About WSFS Financial Corporation
WSFS Financial Corporation is a multi-billion dollar financial services company. Its primary subsidiary, WSFS Bank, is the oldest, locally-managed bank and trust company headquartered in Delaware with $4.0 billion in assets on its balance sheet and $7.7 billion in trust assets under management and administration. WSFS has 43 offices located in Delaware (36), Pennsylvania (5), Virginia (1) and Nevada (1) and provides comprehensive financial services including commercial banking, retail banking and trust and wealth management. Other subsidiaries or divisions include Christiana Trust, WSFS Investment Group, Inc., Cypress Capital Management, LLC and Cash Connect. Serving the Delaware Valley since 1832, WSFS is the seventh oldest bank in the United States continuously operating under the same name. For more information, please visit .
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 its financial assets; changes in government regulation affecting financial institutions and potential expenses associated therewith; changes resulting from the Company's 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 Company 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 Company.
CONTACT: Investor Relations Contact: Stephen A. Fowle (302) 571-6833 [email protected] Media Contact: Stephanie A. Heist (302) 571-5259 [email protected]
