Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
WSFS > SEC Filings for WSFS > Form 10-K on 17-Mar-2014All Recent SEC Filings

Show all filings for WSFS FINANCIAL CORP

Form 10-K for WSFS FINANCIAL CORP


17-Mar-2014

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We are a thrift holding company headquartered in Wilmington, Delaware. Substantially all of our assets are held by our subsidiary, WSFS Bank, the seventh oldest bank continuously operating under the same name in the United States. As a federal savings bank, which was formerly chartered as a state mutual savings bank, we enjoy broader fiduciary powers than most other financial institutions. A fixture in the community, WSFS has been in operation for more than 182 years. In addition to its focus on stellar customer service, the Bank has continued to fuel growth and remain a leader in our community. We are a relationship-focused, locally-managed, community banking institution that has grown to become the largest thrift holding company in the State of Delaware, one of the top commercial lenders in the state and the third largest bank in terms of Delaware deposits. We state our mission simply: "We Stand for Service." Our strategy of "Engaged Associates delivering Stellar Service growing Customer Advocates and value for our Owners" focuses on exceeding customer expectations, delivering stellar service and building customer advocacy through highly-trained, relationship-oriented, friendly, knowledgeable and empowered Associates.

Our core banking business is commercial lending funded by customer-generated deposits. We have built a $2.4 billion commercial loan portfolio by recruiting the best seasoned commercial lenders in our markets and offering a high level of service and flexibility typically associated with a community bank. We fund this business primarily with deposits generated through retail deposits and commercial relationships. We service our customers primarily from our 52 offices located in Delaware (42), Pennsylvania (8), Virginia (1) and Nevada (1) and through our website at www.wsfsbank.com. We also offer a broad variety of consumer loan products, retail securities and insurance brokerage through our retail branches.

In July 2013 we added two new business units to WSFS Bank with the asset purchase of Array Financial Group, Inc. ("Array"), a mortgage banking company specializing in a variety of residential mortgage and refinancing solutions, and a related entity, Arrow Land Transfer Company ("Arrow"), an abstract and title company.

Our Cash Connect division is a premier provider of ATM Vault Cash and related services in the United States. Cash Connect manages nearly $476 million in vault cash in nearly 15,000 ATMs nationwide and also provides online reporting and ATM cash management, predictive cash ordering, armored carrier management, ATM processing and equipment sales. Cash Connect also operates over 450 ATMs for the Bank, which has, by far, the largest branded ATM network in Delaware.

As a leading provider of ATM Vault Cash to the U.S. ATM industry, Cash Connect is exposed to substantial operational risk, including theft of cash from ATMs, armored vehicles, or armored carrier terminals, as well as general risk of accounting errors or fraud. This risk is managed through a series of financial controls, automated tracking and settlement systems, contracts, and other risk mitigation strategies, including both loss prevention and loss recovery strategies. Throughout its 13-year history, Cash Connect periodically has been exposed to theft from armored courier companies and consistently has been able to recover any losses through its risk management strategies.

The Wealth Management division provides a broad array of fiduciary, investment management, credit and deposit products to clients through four businesses. WSFS Investment Group, Inc. provides insurance and brokerage products primarily to our retail banking clients. Cypress Capital Management, LLC ("Cypress") is a registered investment advisor with over $614 million in assets under management. Cypress' primary market segment is high net worth individuals, and offers a 'balanced' investment style focused on preservation of capital and current income. Christiana Trust, with $8.9 billion in assets under administration, provides fiduciary and investment services to personal trust clients, and trustee, agency, custodial and commercial domicile services to corporate and institutional clients. WSFS Private Banking serves high net worth clients by delivering credit and


Table of Contents

deposit products and partnering with Cypress, Christiana Trust and WSFS Investment Group to deliver investment management and fiduciary products and services.

We have two consolidated subsidiaries, WSFS Bank and Montchanin Capital Management, Inc., or Montchanin. We also have one unconsolidated affiliate, WSFS Capital Trust III, or the Trust. WSFS Bank has two wholly-owned subsidiaries, WSFS Investment Group, Inc. and Monarch Entity Services LLC, or Monarch. Montchanin has one wholly-owned subsidiary, Cypress. In addition to the subsidiaries listed above, we also have one consolidated variable interest entity ("VIE"), SASCO 2002-RM1 ("SASCO"), which is a reverse mortgage securitization trust.

RESULTS OF OPERATIONS

We recorded net income of $46.9 million for the year ended December 31, 2013, a $15.6 million or 50% increase compared to $31.3 million for the year ended December 31, 2012, and a $24.2 million increase from $22.7 million for the year ended December 31, 2011. Income allocable to common stockholders (after preferred stock dividends) was $45.2 million, or $5.06 per diluted common share for the year ended December 31, 2013, compared to income allocable to common shareholders of $28.5 million, or $3.25 per diluted common share (a 55% increase in diluted EPS), and income of $19.9 million, or $2.28 per common share, for the years ended December 31, 2012 and 2011, respectively. Earnings for 2013 were impacted by a lower provision for loan losses which decreased $24.9 million to $7.2 million partially offset by securities gains which decreased by $17.9 million to $3.5 million. Net interest income increased during the year due to continued franchise loan growth and prudent balance sheet management. Additionally, we continue to have significant increases in wealth management income, credit/debit card and ATM income and mortgage banking activities. Noninterest expense decreased $416,000 when compared to December 31, 2012 due to management's continued careful monitoring of operating expenses despite the growth in core revenue and corporate development costs. Salaries and benefits increased due to additional performance-driven incentive compensation costs, while loan workout and Other Real Estate Owned expenses continued to decrease due to our improved performance and the continued improvement in nonperforming assets and FDIC expenses from prior year levels.

Net Interest Income. Net interest income increased $4.6 million, or 4%, to $131.6 million in 2013 from $127.0 million in 2012, while net interest margin increased 10 basis points to 3.56% in 2013 compared to 3.46% in 2012. The increase in net interest income was due to lending growth during 2013 and improvement in our balance sheet mix, combined with effective management of funding costs, such as the continued intentional reduction in higher-cost CDs and the prepayment of higher rate Federal Home Loan Bank ("FHLB") borrowings in late 2012. In addition, net interest income and net interest margin have been favorably impacted by the consolidation of SASCO, a reverse mortgage securitization trust, in late 2013. Partially offsetting these increases in net interest income and net interest margin were the year-over-year reduced rates in our mortgage-backed securities ("MBS") portfolio.

Net interest income increased $962,000, or 1%, to $127.0 million in 2012 from $126.0 million in 2011, while net interest margin decreased 14 basis points to 3.46% in 2012 compared to 3.60% in 2011. The increase in net interest income reflects lending growth during 2012 and was earned despite the impact of the successful completion of our Asset Strategies during the second quarter of 2012. Also favorably impacting net interest income was an improvement in our mix of loans combined with effective management of funding costs, both in deposit pricing and wholesale funding rates. The decrease in net interest margin was mainly due to significantly reduced rates in the MBS portfolio resulting from substantial sales and paydowns, with subsequent reinvestment at much lower market rates during 2012. During 2012 we completed our issuance of $55 million in aggregate principal amount of 6.25% Senior Notes due 2019 which also unfavorably impacted our net interest margin.

The following table provides certain information regarding changes in net interest income attributable to changes in the volumes of interest-earning assets and interest-bearing liabilities and changes in the rates for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is


Table of Contents

provided on the changes that are attributable to: (i) changes in volume (change in volume multiplied by prior year rate); (ii) changes in rates (change in rate multiplied by prior year volume on each category); and (iii) net change (the sum of the change in volume and the change in rate). Changes due to the combination of rate and volume changes (changes in volume multiplied by changes in rate) are allocated proportionately between changes in rate and changes in volume.

Year Ended December 31,                               2013 vs. 2012                                 2012 vs. 2011
                                          Volume        Yield/Rate         Net          Volume        Yield/Rate         Net
                                                                             (In Thousands)
Interest Income:
Commercial real estate loans             $  3,489      $     (1,756 )    $  1,733      $   (410 )    $      1,345      $    935
Residential real estate loans                (944 )          (1,034 )      (1,978 )      (1,219 )          (1,093 )      (2,312 )
Commercial loans (1)                        3,608            (4,450 )        (842 )       6,180            (3,891 )       2,289
Consumer loans                                106              (323 )        (217 )        (732 )            (698 )      (1,430 )
Loans held for sale                            72              (156 )         (84 )          61                61           122
Mortgage-backed securities                 (2,207 )          (3,082 )      (5,289 )       2,755           (10,706 )      (7,951 )
Investment securities (2)                     463               731         1,194            77               263          (186 )
Reverse mortgages related assets               67             1,720         1,787             1               133           134
FHLB Stock and deposits in other banks          4               327           331            (2 )              46            44

Favorable (unfavorable)                     4,658            (8,023 )      (3,365 )       6,711            15,067        (8,355 )

Interest expense:
Deposits:
Interest-bearing demand                       113               170           283            79              (238 )        (159 )
Money market                                   34              (670 )        (636 )         151            (1,289 )      (1,138 )
Savings                                         3              (217 )        (214 )         124            (1,158 )      (1,034 )
Customer time deposits                     (2,343 )          (2,476 )      (4,819 )        (821 )          (3,196 )      (4,017 )
Brokered certificates of deposits            (340 )            (195 )        (535 )         277                41           318
FHLB of Pittsburgh advances                 1,183            (5,561 )      (4,378 )      (1,516 )          (2,204 )      (3,720 )
Trust Preferred borrowings                     -               (138 )        (138 )          -                105           105
Reverse mortgage bonds payable                 60                -             60            -                 -             -
Senior debt                                 2,462                13         2,475           648               648         1,296
Other borrowed funds                           70              (122 )         (52 )        (196 )            (772 )        (968 )

Unfavorable (favorable)                     1,242            (9,196 )      (7,954 )      (1,254 )          (8,063 )      (9,317 )

Net change, as reported                  $  3,416      $      1,173      $  4,589      $  7,537      $     (6,575 )    $    962

(1) The tax-equivalent income adjustment is related to commercial loans.

(2) The tax-equivalent income adjustment is related to municipal securities.


Table of Contents

The following table provides information regarding the average balances of, and yields/rates on, interest-earning assets and interest-bearing liabilities during the periods indicated:

Year Ended December 31,                                             2013                                              2012                                              2011
                                                  Average                          Yield/            Average                          Yield/           Average                          Yield/
(Dollars in Thousands)                            Balance         Interest        Rate  (1)          Balance         Interest        Rate (1)          Balance         Interest        Rate (1)
Assets
Interest-earning assets:
Loans (2) (3):
Commercial real estate loans                    $   797,384       $  37,842             4.75 %     $   733,999       $  36,109            4.92 %     $   742,692       $  35,174            4.74 %
Residential real estate
loans                                               235,803           9,492             4.03           258,699          11,470            4.43           294,103          14,057            4.78
Commercial loans                                  1,519,320          67,768             4.43         1,458,601          68,610            4.67         1,337,954          66,320            4.97
Consumer loans                                      288,658          13,445             4.66           285,625          13,662            4.78           300,703          15,092            5.02
Loans held for sale (4)                              18,922             591             3.12            20,127             675            3.35             5,978             279            4.67

Total loans                                       2,860,087         129,138             4.52         2,757,051         130,526            4.75         2,681,430         130,922            4.92
Mortgage-backed securities (5)                      711,443          12,834             1.80           819,545          18,123            2.21           750,975          26,486            3.53
Investment securities (5)                            95,795           1,692             2.50            51,333             498            1.07            44,923             683            1.52
Reverse mortgage related assets                      25,777           2,867            11.12            16,505           1,080            6.54            13,557             535            3.95
Other interest-earning assets                        34,516             391             1.13            32,617              60            0.18            36,707              16            0.04

Total interest-earning assets                     3,727,618         146,922             3.97         3,677,051         150,287            4.11         3,527,592         158,642            4.53

Allowance for loan losses                           (43,014 )                                          (48,485 )                                         (57,325 )
Cash and due from banks                              81,301                                             86,320                                            65,147
Cash in non-owned ATMs                              411,988                                            368,256                                           347,885
Bank-owned life insurance                            63,012                                             63,311                                            63,971
Other noninterest-earning assets                    124,484                                            120,905                                           123,626

Total assets                                    $ 4,365,389                                        $ 4,267,358                                       $ 4,070,896


Table of Contents
Year Ended December 31,                                     2013                                              2012                                             2011
                                           Average                         Yield/            Average                         Yield/           Average                         Yield/
(Dollars in Thousands)                     Balance        Interest        Rate  (1)          Balance        Interest        Rate (1)          Balance        Interest        Rate (1)
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand                  $   566,848      $     529             0.09 %     $   411,862      $     246            0.06 %     $   329,227      $     405            0.12 %
Money market                                 779,023          1,123             0.14           764,109          1,759            0.23           724,263          2,897            0.40
Savings                                      391,047            217             0.06           388,659            431            0.11           355,743          1,465            0.41
Customer time deposits                       530,496          4,712             0.89           716,686          9,531            1.33           765,620         13,548            1.77

Total interest-bearing customer
deposits                                   2,267,414          6,581             0.29         2,281,316         11,967            0.52         2,174,853         18,315            0.84
Brokered certificates of deposit             177,396            599             0.34           269,682          1,134            0.42           201,618            816            0.40

Total interest-bearing deposits            2,444,810          7,180             0.29         2,550,998         13,101            0.51         2,376,471         19,131            0.81
FHLB advances                                573,989          1,874             0.32           466,243          6,252            1.32           561,117          9,972            1.75
Trust preferred borrowings                    67,011          1,342             1.98            67,011          1,480            2.17            67,011          1,375            2.02
Reverse mortgage trust bonds payable           6,757             60             0.88                -              -               -                 -              -               -
Senior debt                                   55,000          3,771             6.86            19,085          1,296            6.68                -              -               -
Other borrowed funds (6)                     143,131          1,107             0.77           135,030          1,159            0.86           150,116          2,127            1.42

Total interest-bearing liabilities         3,290,698         15,334             0.47         3,238,367         23,288            0.72         3,154,715         32,605            1.03

Noninterest-bearing demand deposits          638,397                                           586,173                                          508,613
Other noninterest-bearing liabilities         32,265                                            33,939                                           27,150
Stockholders' equity                         404,029                                           408,879                                          380,418

Total liabilities and stockholders'
equity                                   $ 4,365,389                                       $ 4,267,358                                      $ 4,070,896

Excess of interest-earning assets
over interest-bearing liabilities        $   436,920                                       $   438,684                                      $   372,877

Net interest and dividend income                          $ 131,588                                         $ 126,999                                        $ 126,037

Interest rate spread                                                            3.51 %                                           3.39 %                                           3.49 %

Net interest margin                                                             3.56 %                                           3.46 %                                           3.60 %

(1) Weighted average yields have been computed on a tax-equivalent basis using a 35% effective tax rate.

(2) Nonperforming loans are included in average balance computations.

(3) Balances are reflected net of unearned income.

(4) Includes loans held-for-sale in conjunction with our asset strategies undertaken in 2012.

(5) Includes securities available-for-sale at fair value.

(6) Includes federal funds purchased and securities sold under agreement to repurchase


Table of Contents

Provision for Loan Losses. We maintain an allowance for loan losses at an appropriate level based on our assessment of estimable and probable losses in the loan portfolio, pursuant to accounting literature, which is discussed further in "Nonperforming Assets". Our evaluation is based upon a review of the portfolio and requires significant, complex and difficult judgments. For the year ended December 31, 2013, we recorded a provision for loan losses of $7.2 million compared to $32.1 million in 2012 and $28.0 million in 2011. This decrease was primarily due to a broad improvement in the portfolio credit quality as indicated through significantly improved credit metrics, offset in part by loan growth experienced in 2013.

Noninterest Income. Noninterest income decreased $6.5 million to $80.2 million in 2013 from $86.7 million in 2012. Excluding the non-routine and other one-time items listed in the table below, noninterest income increased $5.3 million, or 8%, to $68.7 million in 2013 from $63.5 million in 2012.

                                                            Twelve months ended
                                        December 31,            December 31,            December 31,
(In Thousands)                              2013                    2012                    2011
Noninterest income (GAAP)              $       80,151          $       86,692          $       63,588
Less: Securities gains, net                    (3,516 )               (21,425 )                (4,878 )
Unanticipated BOLI income                          -                   (1,007 )                (1,239 )
Billing change (Cash
Connect) (1)                                   (4,108 )                  (797 )                    -
Reverse mortgage consolidation
gain (2)                                       (3,801 )                    -                       -

Adjusted noninterest income
(non-GAAP)                             $       68,726          $       63,463          $       57,471

(1) A change in the method of billing for armored car services by our Cash Connect division caused revenues and expenses for these services to be reported separately rather than netted together in our statement of operations beginning in the third quarter of 2012.

(2) During the third quarter of 2013, we obtained the right to execute a clean-up call on the underlying collateral for our pool of reverse mortgages. A non-routine gain resulted from this transaction.

Wealth management income grew $2.2 million, or 17%, in 2013 compared to 2012, reflecting the continued expansion of the corporate and personal trust business lines as well as an increase in Private Banking jumbo mortgage products provided by the Array / Arrow acquisition in 2013. Credit/debit card and ATM fees increased by $1.4 million, or 6%, in 2013 compared to 2012, mostly due to additional product and service offerings and ATM income from Cash Connect® our ATM division, which grew fees by 17%. Mortgage banking revenues increased $1.1 million, or 40%, in 2013 partially due to the purchase of Array / Arrow during the third quarter of 2013, refinance activity, and growth in our retail lending division. Deposit service charges were essentially flat in 2013, as growth was offset by changes in customer behavior due to new regulatory requirements in late 2012.

Noninterest income increased $23.1 million to $86.7 million in 2012 from $63.6 million in 2011. Excluding the impact of the reconciling items in the table above, noninterest income increased $6.0 million, or 10%, to $63.5 million in 2012 from $57.5 million in 2011. Credit/debit card and ATM fees increased by $1.9 million, or 9%, in 2012 compared to 2011, most of which came from growth in Cash Connect. Wealth management income grew $1.4 million, or 12%, in 2012 compared to 2011. Mortgage banking revenues increased $1.3 million, or 87%, in 2012 compared to 2011, primarily driven by refinance activity and growth in the retail lending division. Deposit service charges increased $762,000, or 5%, in 2012 compared to 2011, due to overall Bank growth.


Table of Contents

Noninterest Expenses. Noninterest expense in 2013 decreased $416,000 to $132.9 million from $133.3 million in 2012. Excluding the non-routine and other one-time items listed in the table below, noninterest expense decreased $782,000, or 1%, to $128.1 million in 2013 from $129.0 million in 2012.

                                                           Twelve months ended
                                        December 31,           December 31,           December 31,
(In Thousands)                              2013                   2012                   2011
Noninterest expenses (GAAP)            $      132,929         $      133,345         $      127,477
Less: Billing change (Cash
Connect) (1)                                   (4,108 )                 (797 )                   -
Corporate development costs (2)                  (717 )                   -                    (780 )
"Right Here" advertising
campaign                                           -                      -                    (961 )
Prepayment penalties on FHLB
advances                                           -                  (3,662 )                   -

Adjusted noninterest expenses
(non-GAAP)                             $      128,104         $      128,886         $      125,736

(1) A change in the method of billing for armored car services by our Cash Connect division caused revenues and expenses for these services to be reported separately rather than netted together in our statement of operations beginning in the third quarter of 2012.

(2) Corporate development costs were largely attributable to professional fees related to the Array Financial Group / Arrow Land Transfer Company acquisition that closed during the third quarter of 2013, the pending acquisition of First Wyoming Financial Corporation announced during the . . .

  Add WSFS to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for WSFS - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.