|Username||Post: The Daily Insider Buying Stock for 01/06/2010 is WSFS Financial Corp.|
01-06-10 12:24 AM - Post#4145
WSFS Financial Corp. CEO R. TED WESCHLER bought 27931 shares on 12-23-2009 at $25.97
WSFS Financial Corporation is parent to WSFS Bank (‘the Bank”), one of the ten oldest banks in the United States continuously operating under the same name. A permanent fixture in this community, WSFS has been in operation for more than 175 years. In addition to its focus on stellar customer service, the Bank has continued to fuel growth and remain relevant. The Bank is a relationship-focused, locally-managed, community banking institution that has grown to become the largest thrift holding company in the State of Delaware, the second largest commercial lender in the state and the fourth largest bank in terms of Delaware deposits.
WSFS’ core banking business is commercial lending funded by customer-generated deposits. We have built a $1.7 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 commercial relationships and retail deposits in our 35-branch retail banking franchise located in Delaware and southeastern Pennsylvania. We also offer a broad variety of consumer loan products, retail securities and insurance brokerage through our retail branches.
In 2005, we established WSFS Wealth Strategies, our wealth management services division. Wealth Strategies was formed in response to our commercial customers’ demand for the same high level service in their investment relationships that they enjoyed as banking customers of WSFS. We found that many competitors are not devoting human capital to clients with less than $5 million in investable assets, thereby creating an opportunity. WSFS Wealth Strategies is complemented by Cypress Capital Management, a Registered Investment Adviser, acquired by WSFS in 2004 and WSFS Investment Group, a brokerage firm and insurance agency.
Our Cash Connect division is a premier provider of ATM Vault Cash and related services in the United States. Cash Connect manages more than $265 million in vault cash in approximately 10,000 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 300 ATMs for WSFS Bank, which owns the largest branded ATM network in Delaware.
During the second quarter of 2008, we acquired a majority interest in 1 st Reverse Financial Services, LLC (1 st Reverse), specializing in reverse mortgage lending nationwide.
WSFS POINTS OF DIFFERENTIATION
While all banks offer similar products and services, we believe that WSFS has set itself apart from other banks in our market and the industry in general. Also, community banks have been able to distinguish themselves from large weakened banks with too many big problems and not enough emphasis on the customer in the current environment. The following factors summarize what we believe are those points of differentiation.
Community Banking Model
Our size and community banking model play a key role in our success. Our approach to business combines a service-oriented culture (which we call Stellar Service) with a strong complement of products and services, all aimed at meeting the needs of our retail and business customers. We believe the essence of being a community bank means that we are:
Small enough to offer customers responsive, personalized service and direct access to decision makers,
Large enough to provide all the products and services needed by our target market customers.
As the financial services industry has consolidated, many independent banks have been acquired by national companies that have centralized their decision-making authority away from their customers and focused their mass-marketing to a regional or even national customer base. We believe this trend has frustrated smaller business owners who have become accustomed to dealing directly with their bank’s senior executives and discouraged retail customers who often experience deteriorating levels of service in the branches. Additionally, it frustrates bank Associates who are no longer empowered to provide good and timely service to their customers.
WSFS Bank offers:
Rapid response. Our customers tell us this is a critical differentiator from larger, in-market competitors.
One point of contact. Our Relationship Managers are responsible for understanding his or her customers’ needs and bringing together the right resources in the Bank to meet those needs.
A customized approach to our clients. We believe this gives us an advantage over our competitors who are too large or centralized to offer customized products or services.
Products and services that our customers value. This includes a broad array of banking and cash management products, as well as a legal lending limit high enough to meet the credit needs of our customers, especially as they grow.
Building Associate Engagement and Customer Advocacy
Our business model is built on a concept called Human Sigma, a concept we have implemented using the statement “Engaged Associates delivering Stellar Service to create Customer Advocates”. The Human Sigma model, identified by Gallup, Inc., begins with Associates who have taken ownership of their jobs because their strengths have been identified and they have been matched with the right position and strong management. This strategy motivates Associates, and unleashes innovation and productivity to engage our most valuable asset, our customers, by providing them what we refer to as Stellar Service. As a result, we create Customer Advocates, or customers who have built an emotional attachment to the Bank. Research
Surveys conducted for us by a nationally recognized polling company indicate:
Our Associate Engagement scores consistently rank in the top quartile of companies polled. In 2008, there were 13.4 engaged Associates for every disengaged Associate. This compares to a 2.6:1 ratio in 2003 and a national average of 1.5:1.
Customer surveys rank us in the top 10% of all companies, a “world class” rating. More than 40% of our customers ranked us a “five” out of “five,” strongly agreeing with the statement “I can’t imagine a world without WSFS.”
We believe that by fostering the energy of engaged and empowered Associates, we have become an employer of choice in our market. During each of the past three years, WSFS was ranked “Best Place to Work” by The Wilmington News Journal .
Strong Market Demographics
Delaware is situated in the middle of the Washington, DC - New York corridor which includes the urban markets of Philadelphia and Baltimore. The state benefits from this urban concentration as well as from a unique political environment that has created favorable law and legal structure, a business-friendly environment and a fair tax system. In its 2007 overview, the Corporation for Enterprise Development ranked Delaware as one of only two states to receive “Straight A’s” in its assessment of economic development throughout the U.S. Additionally, Delaware is one of only seven states with a AAA bond rating. Delaware’s Demographics consistently compare favorably to US economic and demographic averages.
Balance Sheet Management
We put a great deal of focus on actively managing our balance sheet. This management manifests itself in:
Strong capital levels. Maintaining strong capital levels is key to our operating philosophy. All regulatory capital levels exceed well-capitalized levels. Our Tier 1 capital ratio was nearly 10% as of December 31, 2008, more than $100 million in excess of the 6% “well-capitalized” level. Our year end capital ratios do not include the additional capital raised in January 2009 through our participation in the Treasury’s Capital Purchase Program (described later).
We maintain discipline around our lending, including planned portfolio diversification. Additionally, we take a proactive approach to identifying trends in our business and lending market and have responded proactively to areas of concern. For instance, we have limited our exposure to construction and land development (CLD) loans as we anticipated an end to the expansion in housing prices. We have also increased our portfolio monitoring and reporting sophistication. We maintain diversification in our loan portfolio to limit our exposure to any single type of credit. Such discipline supplements careful underwriting and the benefits of knowing our customers.
We seek to avoid credit risk in our investment portfolio and use this portion of our balance sheet primarily to help us manage liquidity and interest rate risk, while providing some marginal income. As a result, we have no exposure to Freddie Mac or Fannie Mae preferred securities, Trust Preferred securities or any securities backed by sub-prime assets. Our securities purchases have been almost exclusively AAA-rated credits. To date, we have had no other-than-temporary impairment losses to report.
We have been subject to many of the same pressures facing the banking industry, including an increase in our delinquent loans, problem loans and charge-offs from the unsustainably low levels in recent years. The measures we have taken strengthen the Bank’s credit position by diversifying risk and limiting exposure.
Disciplined and Aggressive Capital Management
We understand that our capital (or shareholders’ equity) belongs to our shareholders. They have entrusted this capital to us with the expectation that it will be kept safe, but with the equal expectation that it will earn an adequate return. As a result, we prudently but aggressively manage our shareholders’ capital. It is our intention to return some of our earnings to shareholders through share repurchases, which is now subject to approval by the U.S. Treasury, while maintaining adequate levels of capital.
Strong Performance Expectations
We are focused on high-performing long term financial goals. We define “high performing” as the top quintile of a relevant peer group in return on assets (ROA), return on equity (ROE) and earnings per share (EPS) growth. While industry headwinds have depressed these measures for the industry in recent years, long term, we believe these targets should translate to approximately 1.5% ROA, 18% ROE and a 12% EPS growth rate. Management incentives are paid, in large part, based on driving performance in these areas. A “Target” payment level is only achieved by reaching performance at the 60 th percentile of a peer group of all publicly traded banks and thrifts in our size range. More details on this plan are included in our proxy statement.
Our successful long-term trend in lending, deposit gathering and EPS have been the result of our focused strategy that provides the service and responsiveness of a community bank in a consolidating marketplace. We will continue to grow by:
Recruiting and developing talented, service-minded Associates. We have successfully recruited Associates with strong community ties to strengthen our existing markets and provide a strong start in new communities. We also focus efforts on developing talent and leadership in our current Associate base to better equip those Associates for their jobs and prepare them for leadership roles at WSFS.
Embracing the Human Sigma concept. We are committed to building Associate engagement and customer advocacy as a way to develop our culture and grow our franchise. We firmly believe franchise and shareholder value are directly linked to our Human Sigma model.
Continuing strong growth in commercial lending by:
Selectively building a presence in contiguous markets.
Providing product solutions like Remote Deposit Capture to facilitate commercial banking outside of our primary market.
Offering our community banking model that combines Stellar Service with the banking products and services our business customers demand.
Aggressively growing deposits. In 2003, we energized our retail branch strategy by combining Stellar Service with an expanded and updated branch network. We have also implemented a number of additional measures to accelerate our deposit growth. We will continue to grow deposits by:
Expanding and renovating our retail branch network.
Further expanding our commercial customer relationships with deposit products.
Finding creative ways to build deposit market share such as hiring deposit-focused relationship managers, and targeted marketing programs.
Potential acquisitions such as the branch acquisition we completed in 2008.
Growing our wealth management services division by leveraging the strong relationships we have with our current customer base and providing unparalleled service to modestly wealthy clients in our market.
Our focus on these points of differentiation has allowed us to grow our core franchise and build value for our shareholders. Since 2004, our commercial loans have grown from $903 million to $1.8 billion, a strong 18% compound annual growth rate (CAGR). Over the same period, customer deposits have grown from $1.1 billion to $1.7 billion, a 13% CAGR. More importantly, over the last decade, shareholder value has increased at a far greater rate than our banking peers and the market in general, as is evident in the table below.
We have two consolidated subsidiaries, WSFS Bank and Montchanin Capital Management, Inc.
WSFS Bank has one wholly owned subsidiary, WSFS Investment Group, Inc., which markets various third-party investment and insurance products, such as single-premium annuities, whole life policies and securities primarily through the Bank’s retail banking system and directly to the public.
In addition, WSFS Bank has one majority owned subsidiary, 1 st Reverse Financial Services, LLC (1 st Reverse). 1 st Reverse, a 51% owned subsidiary, is an Illinois-based reverse mortgage company that originates and subsequently sells reverse mortgage loans nationwide.
Montchanin Capital Management, Inc. (“Montchanin”) provides asset management services in our primary market area. Montchanin has one wholly owned subsidiary, Cypress Capital Management, LLC (“Cypress”). Cypress is a Wilmington-based investment advisory firm servicing high net-worth individuals and institutions and had approximately $410 million in assets under management at December 31, 2008.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS’ EQUITY
Condensed average balance sheets for each of the last three years and analyses of net interest income and changes in net interest income due to changes in volume and rate are presented in “Results of Operations” included in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
At December 31, 2008, WSFS’ total securities portfolio had a carrying value of $547.9 million. The Company’s strategy has been to avoid credit risk in our securities portfolio. Therefore, securities purchases have been limited to AAA-rated securities, except for $12.4 million in BBB+ rated MBS purchased in conjunction with a 2002 reverse mortgage securitization.
• WSFS owns no CDOs, Bank Trust Preferred, Agency Preferred securities or equity securities in other FDIC insured banks or thrifts.
The portfolio is comprised of:
• $44.6 million in Federal Agency debt securities with a maturity of four years or less.
•$194.7 million in “plain vanilla” Agency MBS. Of these, $103.4 million are sequential pay CMOs with no contingent cash flows and $91.3 million are Agency MBS with 10-15 year original final maturities.
•$292.7 million in Non-Agency MBS. The quality of this portfolio is evidenced by:
oDiversification among more than 75 different pools.
Significant seasoning, with 85% of underlying loans originated in 2005 or earlier, and 15% originated in 2006.
oHeavy continuing principal amortization, as more than 95% of these bonds were originally 15-year pass-through cash flows.
oStrong fundamental characteristics, with an average loan-to-value of 42% (based on scheduled amortization and initial appraised value) with an average FICO score (at origination) well above 700. Only 11% of the collateral is classified as Alt-A loans and none are classified as sub-prime.
Only four of the 75 bonds, with a market value of $11.3 million, were downgraded in 2008. Based on stress tests of these four bonds using proprietary models of two independent companies, management believes the collection of the contractual principal and interest is probable and therefore the unrealized losses are considered to be temporary.
Named Executive Officers (NEOs)
There was one change, shown below, to our list of NEOs from those reported in last year’s proxy.
Named Executive Officers
Mark A. Turner – President and Chief Executive Officer
Mark A. Turner – President and Chief Executive Officer
Marvin N. Schoenhals – Chairman of the Board
Marvin N. Schoenhals – Chairman of the Board
Stephen A. Fowle – Executive Vice President and Chief Financial Officer
Stephen A. Fowle – Executive Vice President and Chief Financial Officer
Rodger Levenson - Executive Vice President and Director of Commercial Banking
Rodger Levenson - Executive Vice President and Director of Commercial Banking
Barbara J. Fischer – Executive Vice President and Chief Administrative Officer
Richard M. Wright – Executive Vice President and Director of Retail Banking and Marketing
MANAGEMENT DISCUSSION FROM LATEST 10K
WSFS Financial Corporation (“the Company,” “our Company,” “we,” “our” or “us”) is a thrift holding company headquartered in Wilmington, Delaware. Substantially all of our assets are held by our subsidiary, Wilmington Savings Fund Society, FSB (“WSFS Bank” or the “Bank”). Founded in 1832, we are one of the ten oldest banks in the United States continuously-operating under the same name. As a federal savings bank, which was formerly chartered as a state mutual savings bank, we enjoy broader investment powers than most other financial institutions. We have served the residents of the Delaware Valley for over 175 years. We are the largest thrift institution headquartered in Delaware and the third largest financial institution in the state on the basis of total deposits traditionally garnered in-market. Our primary market area is the mid-Atlantic region of the United States, which is characterized by a diversified manufacturing and service economy. Our long-term strategy is to serve small and mid-size businesses through loans, deposits, investments, and related financial services, and to gather retail core deposits. Our strategic focus is to exceed customer expectations, deliver stellar service and build customer advocacy through highly trained, relationship oriented, friendly, knowledgeable, and empowered Associates.
We provide residential and commercial real estate, commercial and consumer lending services, as well as retail deposit and cash management services. In addition, we offer a variety of wealth management and personal trust services through WSFS Wealth Strategies, which was formed during 2005. Lending activities are funded primarily with retail deposits and borrowings. The Federal Deposit Insurance Corporation (“FDIC”) insures our customers’ deposits to their legal maximum. We serve our customers primarily from our main office, 35 retail banking offices, loan production offices and operations centers located in Delaware, southeastern Pennsylvania and Virginia and through our website at www.wsfsbank.com.
We have two consolidated subsidiaries, WSFS Bank and Montchanin Capital Management, Inc. (“Montchanin”). We also have one unconsolidated affiliate, WSFS Capital Trust III (“the Trust”). WSFS Bank has a fully-owned subsidiary, WSFS Investment Group, Inc., which markets various third-party insurance products and securities through the Bank’s retail banking system. WSFS Bank also owns a majority interest in 1 st Reverse Financial Services, LLC (1 st Reverse), specializing in reverse mortgage lending.
Montchanin has one consolidated subsidiary, Cypress Capital Management, LLC (“Cypress”). Cypress is a Wilmington-based investment advisory firm serving high net-worth individuals and institutions. Cypress had approximately $410 million in assets under management at December 31, 2008.
Within this annual report and financial statements, management has included certain “forward-looking statements” concerning our future operations. Statements contained in this annual report which are not historical facts, are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. It is management’s desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This statement is for the express purpose of availing the Corporation of the protections of such safe harbor with respect to all “forward-looking statements.” Management has used “forward-looking statements” to describe future plans and strategies including expectations of our future financial results. Management’s ability to predict results or the effect of future plans and strategy is inherently uncertain. Factors that could affect results include interest rate trends, competition, the general economic climate in Delaware, the mid-Atlantic region and the country as a whole, asset quality, loan growth, loan delinquency rates, operating risk, uncertainty of estimates in general, and changes in federal and state regulations, among other factors. These factors should be considered in evaluating the “forward-looking statements,” and undue reliance should not be placed on such statements. Actual results may differ materially from management expectations. We do not undertake, and specifically disclaim any obligation to publicly release the result of any revisions
that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
RESULTS OF OPERATIONS
WSFS Financial Corporation recorded net income of $16.1 million or $2.57 per diluted share for the year ended December 31, 2008, compared to $29.6 million or $4.55 per share and $30.4 million or $4.41 per share in 2007 and 2006, respectively.
Net Interest Income. Net interest income increased $7.2 million, or 9%, to $89.2 million in 2008 compared to $82.0 million in 2007. The net interest margin for 2008 was 3.13%, up 0.04% from 2007. These increases were the result of a slightly liability sensitive balance sheet combined with active management of deposit pricing. In comparison to 2007, the yield on interest-bearing liabilities declined by 1.41%, while the yield on interest-earning assets only declined by 1.27%. The improvement in the net interest margin also reflects growth, and the improved mix of our balance sheet. The investment category on our average balance sheet includes income from reverse mortgages, which declined substantially in 2008 compared to 2007, consistent with decreases in home prices over the past year. During 2008 we lost $1.1 million on reverse mortgages compared to income of $2.0 million in 2007. For further discussion of reverse mortgages, see the “Reverse Mortgages” discussion included in this Management’s Discussion and Analysis and Note 4 to the Consolidated Financial Statements.
Net interest income increased $4.1 million, or 5%, to $82.0 million in 2007 compared to $77.9 million in 2006. The net interest margin for 2007 was 3.09%, up 0.11% from 2006. The overall improvement in the net interest margin over the previous year reflects loan growth and our continued efforts to refocus the mix of our balance sheet. Loans, with an average yield of 7.55%, increased $168.7 million on average while mortgage-backed securities, with an average yield of 4.93%, declined $99.4 million on average mostly due to scheduled repayments. In addition, interest-bearing deposits, with an average rate of 3.76%, increased $219.3 million on average while FHLB advances, with an average rate of 4.97%, decreased $210.1 million on average. The yield on earning assets increased 0.37% on average in comparison to 2006 while the rate on interest-bearing liabilities increased by 0.27% on average. Additionally, income from reverse mortgages increased $1.3 million in comparison to 2006.
The following table sets forth 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 yields for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is 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.
Provision for Loan Losses . We maintain an allowance for loan losses at an appropriate level based on management’s assessment of the estimable and probable losses in the loan portfolio, pursuant to accounting literature, which is discussed further in the “Nonperforming Assets” section of this Management’s Discussion and Analysis. Management’s evaluation is based upon a review of the portfolio and requires significant judgment. For the year ended December 31, 2008, we recorded a provision for loan losses of $23.0 million compared to $5.0 million in 2007 and $2.7 million in 2006. The $23.0 million included $14.7 million recorded in the fourth quarter of 2008. The larger provision amount was due to the rapid deterioration in the economic environment during the fourth quarter. The $14.7 million includes the following: $7.3 million was related to four large construction loans and land development projects; $6.2 million was attributed to reserves for new loans, updated loss rate expectations on the consumer and mortgage portfolios, as well as credit risk migration in the commercial loan portfolio due to economic conditions; and $1.2 million was a result of consumer credit losses taken during the fourth quarter of 2008. The increase in the provision for loan loss reflects our proactive approach in confronting the reality of the deepening economic recession.
Noninterest Income . Noninterest income decreased $2.2 million to $46.0 million in 2008, or 5%, from $48.2 million in 2007. The majority of the decrease was due to a $2.5 million decrease in credit card/debit card and ATM income due to reduced prime based ATM bailment fees. Although noninterest income was negatively impacted by lower bailment fees, the net interest margin benefited due to lower funding costs for these borrowings. In addition, 2007 had included a $1.1 million non-recurring gain related to the sale of our former headquarters building and an $882,000 gain from the sale of our credit card portfolio. Also during the year, income from Bank-Owned Life Insuarance (BOLI) decreased $483,000 from the prior year due to lower yields in underlying investments funding this program. These decreases were partially offset by an increase in loan fee income of $1.3 million. The majority of the increase in loan fee income was due to $851,000 in fees from 1 st Reverse Financial Services, LLC (“1 st Reverse”). During the second quarter of 2008 we acquired a majority interest in 1 st Reverse, specializing in both reverse mortgage lending directly to consumers and business-to-business reverse mortgage lending through banks, brokers and financial institutions throughout the United States. Deposit service charges also increased $1.1 million. This increase was a result of overall growth in deposits. In 2008 we also recorded a $1.8 million gain on the sale of shares related to the completion of Visa’s initial public offering, and a $1.6 million charge related to a mark-to-market adjustment on the $12.4 million BBB+ rated mortgage-backed security (“MBS”) issued in connection with a 2002 reverse mortgage securitization.
Noninterest income increased $7.9 million to $48.2 million in 2007, or 20%, from $40.3 million in 2006. This was attributable to a $3.2 million increase in deposit service charges as we continued to benefit from increased deposit accounts and offered additional fee-based services. The increase also included a $1.1 million non-recurring gain related to the sale of our former headquarters building and an $882,000 gain from the sale of our credit card portfolio. Credit/debit card and ATM income also increased $915,000 as a result of increased volumes of cash in non-owned ATMs and higher bailment fess earned on this cash. In 2007 we also recorded two offsetting $6.0 million items. Both occurred during the fourth quarter and resulted in a gain and an expense recognized from the donation of a N.C. Wyeth mural, Apotheosis of the Family, which was located in our former headquarters.
Noninterest Expenses . Noninterest expenses increased $7.1 million to $89.1 million in 2008, or 9%, from $82.0 million in 2007. Excluding $2.8 million of expenses related to 1 st Reverse, acquired in the second quarter of 2008, expenses increased $4.3 million or 5% over 2007. As a result of continued growth efforts salaries, benefits, and other compensation increased $1.1 million while other operating expenses increased $1.2 million. Included in other operating expenses was a $453,000 increase in FDIC charges due to increased assessment rates. During 2008 the investment in WSFS franchise included the opening of one branch in Selbyville, Delaware, the relocation of another branch in Smyrna, Delaware, and the previously mentioned acquisition of branches. Further, during 2008 professional fees increased $1.3 million as a result of legal fees reflecting increased costs relating to problem credits, reflecting credit costs associated with the challenging credit environment.
Noninterest expenses increased $12.7 million to $82.0 million in 2007, or 18%, from $69.3 million in 2006. WSFS showed strong growth in 2007 which included the opening of three branch offices, one branch renovation, and the relocation of our corporate headquarters. As a result of this growth, the number of full-time associates grew to 599, resulting in increased salaries, benefits and other compensation of $4.3 million. This growth also affected both occupancy expense, which increased by $2.8 million, and other operating expenses, which increased by $1.9 million. During 2007 our marketing expenses increased $1.2 million, as a multi-year brand campaign was launched with the intent to leverage our Stellar Service model with the message “ W e S tand F or S ervice.” Also during 2007, we recorded a $1.2 million expense related to the Visa antitrust lawsuit settlement with American Express and Discover.
Income Taxes. We recorded a $7.0 million tax provision for the year ended December 31, 2008 compared to $13.5 million and $15.7 million for the years ended December 31, 2007 and 2006, respectively. The effective tax rates for the years ended December 31, 2008, 2007 and 2006 were 30.1%, 31.2% and 34.0%, respectively. The reduction in the 2008 effective tax rate is primarily the result of volatility in effective tax rates. The reduction in the 2007 effective tax rate is primarily the result of a $1.7 million tax benefit related to the previously discussed donation of the N.C. Wyeth mural. The provision for income taxes includes federal, state and local income taxes that are currently payable or deferred because of temporary differences between the financial reporting bases and the tax reporting bases of the assets and liabilities.
We analyze our projection of taxable income and make adjustments to our provision for income taxes accordingly. For additional information regarding our tax provision and net operating loss carryforwards, see Note 12 to the Consolidated Financial Statements.
Total assets increased $232.4 million, or 7%, during 2008 to $3.4 billion. This increase was predominantly due to growth in net loans, which grew $209.9 million, or 9%, during 2008. Total liabilities increased $227.1 million during the year to $3.2 billion at December 31, 2008. This increase was primarily the result of an increase in customer deposits of $227.9 million, or 15% and brokered deposits of $62.2 million, or 25% during 2008. Partially offsetting these increases was an $82.3 million, or 9% decrease in FHLB advances.
Cash in non-owned ATMs. During 2008, cash in non-owned ATMs managed by CashConnect, our ATM unit, increased $7.4 million, or 4%. This increase was the result of an increase in the number of ATMs serviced by CashConnect from 9,976 at December 31, 2007 to 10,031 at December 31, 2008. Of these, 301 ATMs were WSFS owned and operated during 2008.
Mortgage-backed Securities . Our mortgage-backed securities are predominantly “plain-vanilla”, AAA-rated and of short duration. Investments in mortgage-backed securities increased $1.4 million during 2008 to $498.2 million. There were no sales of mortgage-backed securities during 2008. The weighted average duration of the mortgage-backed securities was 2.9 years at December 31, 2008.
Investment Securities. Our investment securities are comprised mostly of Federal Agency debt securities with a maturity of four years or less. We own no Collateralized Debt Obligations, Bank Trust Preferred, Agency Preferred securities or equity securities in other FDIC insured banks or thrifts.
Loans, net . Net loans increased $209.9 million, or 9%, during 2008. This included increases of $155.4 million, or 20%, in commercial loans, $67.6 million, or 9%, in commercial real estate loans, and $18.5 million, or 7%, in consumer loans. This increase was partially offset by a decrease of $24.7 million, or 6%, in residential mortgage loans.
Customer Deposits . Customer deposits increased $227.9 million, or 15%, during 2008 to $1.7 billion. During 2008 we acquired six Delaware branches from Sun National Bank, including $95.3 million in customer deposit accounts and paid a 12% premium on the balances. For additional information regarding this transaction, see Note 20 to the Consolidated Financial Statements. Customer time deposits (CDs) increased $129.0 million, or 25%, in 2008. In addition, core deposit relationships (demand deposits, money market and savings
Borrowings and Brokered Certificates of Deposit. Borrowings and brokered certificates of deposit decreased by $6.2 million, or less than 1%, during 2008. This decrease was primarily the result of a decrease in FHLB advances of $82.3 million, or 9%. Partially offsetting this decrease was a $62.2 million, or 25%, increase in brokered deposits. In addition, other borrowed funds increased $14.0 million, or 15%.
Stockholders’ Equity . Stockholders’ equity increased $5.3 million to $216.6 million at December 31, 2008. This increase included an increase of $7.4 million in comprehensive income and $3.0 million from the result of the exercise of common stock options. Partially offsetting these decreases was the purchase of 73,500 shares of treasury stock for $3.6 million. At December 31, 2008, we held 9.6 million shares of our common stock as treasury stock. Long-term, it is our intention to return some of our earnings to shareholders through share repurchases, which is subject to approval by the U.S. Treasury, while maintaining adequate levels of capital. In addition, we declared cash dividends totaling $2.8 million during 2008.
Our primary asset/liability management goal is to maximize net interest income opportunities within the constraints of managing interest rate risk, while ensuring adequate liquidity and funding and maintaining a strong capital base.
In general, interest rate risk is mitigated by closely matching the maturities or repricing periods of interest-sensitive assets and liabilities to ensure a favorable interest rate spread. We regularly review our interest-rate sensitivity, and use a variety of strategies as needed to adjust that sensitivity within acceptable tolerance ranges established by management and the Board of Directors. Changing the relative proportions of fixed-rate and adjustable-rate assets and liabilities is one of our primary strategies to accomplish this objective.
The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest-rate sensitive” and by monitoring an institution’s interest-sensitivity gap. An interest-sensitivity gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities repricing within a defined period, and is considered negative when the amount of interest-rate sensitive liabilities exceeds the amount of interest-rate sensitive assets repricing within a defined period.
Generally, during a period of rising interest rates, a positive gap would result in an increase in net interest income while a negative gap would adversely affect net interest income. Conversely, during a period of falling rates, a positive gap would result in a decrease in net interest income while a negative gap would augment net interest income. However, the interest-sensitivity table does not provide a comprehensive representation of the impact of interest rate changes on net interest income. Each category of assets or liabilities will not be affected equally or simultaneously by changes in the general level of interest rates. Even assets and liabilities which contractually reprice within the rate period may not, in fact, reprice at the same price or the same time or with the same frequency. It is also important to consider that the table represents a specific point in time. Variations can occur as we adjust our interest-sensitivity position throughout the year.
To provide a more accurate position of our one-year gap, certain deposit classifications are based on the interest-rate sensitive attributes and not on the contractual repricing characteristics of these deposits. Management estimates, based on historical trends of our deposit accounts, that 35% of money market and 13% of interest-bearing demand deposits are sensitive to interest rate changes and that 22% to 36% of savings deposits are sensitive to interest rate changes. Accordingly, these interest-sensitive portions are classified in the less than one-year category with the remainder in the over five-year category.
Deposit rates other than time deposit rates are variable, and changes in deposit rates are generally subject to local market conditions and management’s discretion and are not indexed to any particular rate.
We hold an investment in reverse mortgages of $(61,000) at December 31, 2008 representing a participation in reverse mortgages with a third party. The loans supporting this balance were originated in the early 1990’s.
Reverse mortgage loans are contracts that require the lender to make monthly advances throughout the borrower’s life or until the borrower relocates, prepays or the home is sold, at which time the loan becomes due and payable. Reverse mortgages are nonrecourse obligations, which means that the loan repayments are generally limited to the net sale proceeds of the borrower’s residence.
We account for our investment in reverse mortgages by estimating the value of the future cash flows on the reverse mortgages at a rate deemed appropriate for these mortgages, based on the market rate for similar collateral. Actual cash flows from the maturity of these mortgage loans can result in significant volatility in the recorded value of reverse mortgage assets. As a result, income varies significantly from reporting period to reporting period. For the year ended December 31, 2008, we lost $1.1 million in interest income on reverse mortgages as compared to posting income of $2.0 million in 2007 and $684,000 in 2006. The loss in 2008 primarily resulted from the decrease in the values of the properties securing these mortgages, based on annual re-evaluations and consistent with the decrease in home values over the past year.
The projected cash flows depend on assumptions about life expectancy of the mortgagee and the future changes in collateral values. Projecting the changes in collateral values is the most significant factor impacting the volatility of reverse mortgage values. Our current assumptions include a short-term annual appreciation rate of -8.0% in the first year, and a long-term annual appreciation rate of 0.5% in future years. If the long-term appreciation rate was increased to 1.5%, the resulting impact on income would have been $26,000. Conversely, if the long-term appreciation rate was decreased to -0.5%, the resulting impact on income would have been $(22,000).
We also hold $10.8 million in BBB+ rated mortgage-backed securities classified as trading and have options to acquire up to 49.9% of Class “O” Certificates issued in connection with securities consisting of a portfolio of reverse mortgages we previously owned. The Class “O” Certificates are currently recorded on our financial statements at a zero value. At the time of the securitization, the third-party securitizer (Lehman Brothers) retained 100% of the Class “O” Certificates from the securitization. These Class “O” Certificates have no priority over other classes of Certificates under the Trust and no distributions will be made on the Class “O” Certificates until, among other conditions, the principal amount of each other class of notes has been reduced to zero. The underlying assets, the reverse mortgages, are very long-term assets. Therefore, any cash flow that might inure to the holder of the Class “O” Certificates is not expected to occur until many years in the future. Additionally, we can exercise our option on 49.9% of the Class “O” Certificates in up to five separate increments for an aggregate purchase price of $1.0 million any time between January 1, 2004 and the termination of the Securitization Trust. The option to purchase the Class “O” Certificates does not meet the definition of a derivative under SFAS No. 133, Accounting for Derivative and Hedging Activities and is carried in our financial statements at cost. During the third quarter of 2008 Lehman Brothers filed for bankruptcy. We are currently in discussions with legal counsel to determine our legal rights with respect to the Class “O” certificates.
During 2006, we formed a new reverse mortgage initiative. While our activity during the past two years has been limited to acting as a correspondent for these loans, it is our intention to originate and underwrite our own reverse mortgages in the future. We expect to sell most of these loans and do not intend to hold them in our portfolio. These reverse mortgages are government approved and insured.
Nonperforming assets, which include nonaccruing loans, nonperforming real estate investments and assets acquired through foreclosure, can negatively affect our results of operations. Nonaccruing loans are those on which the accrual of interest has ceased. Loans are placed on nonaccrual status immediately if, in the opinion of management, collection is doubtful, or when principal or interest is past due 90 days or more and the value of the collateral is insufficient to cover principal and interest. Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed and charged against interest income. In addition, the amortization of net deferred loan fees is suspended when a loan is placed on nonaccrual status. Subsequent cash receipts are applied either to the outstanding principal balance or recorded as interest income, depending on management’s assessment of the ultimate collectibility of principal and interest. Past due loans are defined as loans contractually past due 90 days or more as to principal or interest payments but which remain in accrual status because they are considered well secured and in the process of collection.
MANAGEMENT DISCUSSION FOR LATEST QUARTER.
WSFS Financial Corporation (“the Company”, “our Company”, “we”, “our” or “us”) is a thrift holding company headquartered in Wilmington, Delaware. Substantially all of our assets are held by our subsidiary, Wilmington Savings Fund Society, FSB (“WSFS Bank” or the “Bank”). Founded in 1832, we are one of the ten oldest banks in the United States continuously-operating under the same name. As a federal savings bank, which was formerly chartered as a state mutual savings bank, we enjoy broader investment powers than most other financial institutions. We have served the residents of the Delaware Valley for over 175 years. We are the largest thrift institution headquartered in Delaware and the fourth largest financial institution in the state on the basis of total deposits traditionally garnered in-market. Our primary market area is the mid-Atlantic region of the United States, which is characterized by a diversified manufacturing and service economy. Our long-term strategy is to serve small and mid-size businesses through loans, deposits, investments, and related financial services, and to gather retail core deposits. Our strategic focus is to exceed customer expectations, deliver stellar service and build customer advocacy through highly trained, relationship oriented, friendly, knowledgeable, and empowered Associates.
We have two consolidated subsidiaries, WSFS Bank and Montchanin Capital management, Inc. (“Montchanin”). We also have one unconsolidated affiliate, WSFS Capital Trust III (“the Trust”). WSFS Bank has a fully-owned subsidiary, WSFS Investment Group, Inc., and also owns a majority interest in 1 st Reverse Financial Services, LLC (“1 st Reverse”). Montchanin has one consolidated subsidiary, Cypress Capital Management, LLC (“Cypress”). For additional information on the Company or any of our subsidiaries, see Note 1, Basis of presentation, to the Consolidated Financial Statements.
The following discussion may contain statements which are not historical facts and 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 laws and regulations affecting financial institutions, including 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 statements, whether written or oral, that may be made from time to time by or on behalf of the Corporation.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of the financial condition and results of operations are based on the Consolidated Financial Statements, which are prepared in conformity with U.S. generally accepted accounting principles. The preparation of these Consolidated Financial Statements requires management to make estimates and assumptions affecting the reported amounts of assets, liabilities, revenue and expenses. We regularly evaluate these estimates and assumptions including those related to the allowance for loan losses, contingencies (including indemnifications), and deferred taxes. We base our estimates on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances. These form the basis for making judgments on the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The following are critical accounting policies that involve more significant judgments and estimates:
Allowance for Loan Losses
We maintain allowances for credit losses and charge losses to these allowances when realized. The determination of the allowance for loan losses requires significant judgment reflecting our best estimate of probable loan losses related to specifically identified loans as well as those in the remaining loan portfolio. Our evaluation is based upon a continuing review of these portfolios, with consideration given to evaluations resulting from examinations performed by regulatory authorities.
Contingencies (Including Indemnifications)
In the ordinary course of business we are subject to legal actions, which involve claims for monetary relief. Based upon information presently available to us and our counsel, it is our opinion that any legal and financial responsibility arising from such claims will not have a material adverse effect on our results of operations.
We maintain a loss contingency for standby letters of credit and charge losses to this reserve when such losses are realized. The determination of the loss contingency for standby letters of credit requires significant judgment reflecting management’s best estimate of probable losses.
The Bank, as successor to originators of reverse mortgages is, from time to time, involved in arbitration or litigation with various parties including borrowers or the heirs of borrowers. Because reverse mortgages are a relatively new and uncommon product, there can be no assurances about how the courts or arbitrators may apply existing legal principles to the interpretation and enforcement of the terms and conditions of the Bank’s reverse mortgage obligations.
We account for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes (“ASC 740”), which requires the recording of deferred income taxes that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We continually assess the need for valuation allowances on deferred income tax assets that may result from, among other things, limitations imposed by Internal Revenue Code and uncertainties, including the timing of settlement and realization of these differences. No valuation allowance is required as of September 30, 2009.
Fair Value Measurements
We adopted FASB ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. See Note 10, Fair Value of Financial Assets.
FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY
Our total assets increased $141.0 million, or 4%, during the nine months ended September 30, 2009. Total loans increased $66.1 million, or 3%, attributable to a $131.5 million, or 8%, increase in commercial and commercial real estate loans offset by a decrease in residential mortgage loans of $50.4 million, or 13%, and an additional allowance for loan losses of $21.0 million, or 67%. Mortgage-backed securities increased $27.3 million, or 5%. Finally, cash and cash equivalents increased $41.0 million, or 17%. This included a $7.0 million, or 12% increase in cash and due from banks, and a $33.7 million, or 18%, increase in cash in non-owned ATMs.
Total liabilities increased $54.5 million, or 2%, between December 31, 2008 and September 30, 2009 to $3.3 billion. This increase was mainly due to an increase in deposits of $354.5 million, or 17%. This included increases of $357.0 million, or 21%, in customer deposits and $22.9 million, or 7%, in brokered certificates of deposit. These increases in customer deposits improved our funding mix as deposit growth reduced our need for more costly wholesale funding. As a result, both Federal Home Loan Bank (FHLB) advances and other jumbo certificates of deposits decreased by $310.4 million, or 38%, and $25.4 million, or 24%, respectively.
At September 30, 2009, we had approximately $10.9 million in goodwill, primarily the result of a multi-branch purchase in 2008. At September 30, 2009, we considered whether there were any occurrences of a triggering event which would require us to test the goodwill for impairment before our annual test in December, as required under GAAP. Our review concluded there were no such occurrences and therefore we did not test our goodwill for impairment.
Stockholders’ equity increased $86.4 million between December 31, 2008 and September 30, 2009. This increase was mainly due to the sale of senior preferred stock to the U.S. Department of the Treasury under its Capital Purchase Program (“CPP”) totaling $52.6 million and the sale of $25.0 million of common stock to Peninsula Investment Partners, L.P (“Peninsula”). Also, accumulated other comprehensive loss decreased $10.5 million during the first nine months of 2009 mainly due to an increase in the fair value of securities available-for-sale. Partially offsetting these increases was the declaration of common and preferred dividends totaling $2.2 million and $1.5 million, respectively, during the nine months ended September 30, 2009.
Under Office of Thrift Supervision (“OTS”) capital regulations, savings institutions such as the Bank must maintain “tangible” capital equal to 1.5% of adjusted total assets, “core” capital equal to 4.0% of adjusted total assets, “Tier 1” capital equal to 4.0% of risk weighted assets and “total” or “risk-based” capital (a combination of core and “supplementary” capital) equal to 8.0% of risk-weighted assets. Failure to meet minimum capital requirements can initiate certain mandatory actions and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our bank’s financial statements. At September 30, 2009 the Bank was in compliance with regulatory capital requirements and is considered a “well-capitalized” institution.
We manage our liquidity risk and funding needs through our treasury function and our Asset/Liability Committee. We have a policy that separately addresses liquidity, and management monitors our adherence to policy limits. Also, liquidity risk management is a primary area of examination by the OTS. We comply with guidance promulgated under Thrift Bulletin 77 that requires thrift institutions to maintain adequate liquidity to assure safe and sound operations.
As a financial institution, the Bank has ready access to several sources to fund growth and meet its liquidity needs. Among these are: net income, deposit programs, loan repayments, borrowing from the FHLB, repurchase agreements and the brokered deposit market. The Bank’s branch expansion is intended to enter us into new, but contiguous, markets, attract new customers and provide funding for its business loan growth. In addition, we have a large portfolio of high-quality, liquid investments, primarily short-duration, AAA-rated, mortgage-backed securities and Agency notes that provide a near-continuous source of cash flow to meet current cash needs, or can be sold to meet larger discrete needs for cash. Management believes these sources are sufficient to maintain the required and prudent levels of liquidity.
During the nine months ended September, 2009, cash and cash equivalents increased $41.0 million to $289.6 million. The increase was a result of the following: a $293.5 million increase in cash provided through increases in demand, savings and time deposits; the sale of 52,625 shares of senior preferred stock, resulting in an increase in cash of $52.6 million; increase in cash of $35.6 million provided by operating activities; the issuance of $30.0 million of unsecured debt under the FDIC’s Temporary Liquidity Guarantee Program (“TLGP”); and an increase in cash of $25.0 million from the completion of the common stock sale to Peninsula in September 2009. Partially offsetting these increases was net borrowings from the FHLB, which decreased $310.4 million during the nine months ended September 30, 2009, resulting in a decrease in cash. In addition, net loan growth resulted in the use of $100.2 million in cash, which was primarily the result of the successful implementation of specific strategies designed to increase corporate and small business lending.
The following table shows our nonperforming assets and past due loans at the dates indicated. Nonperforming assets include nonaccruing loans, nonperforming real estate investments, assets acquired through foreclosure and restructured mortgage and home equity consumer debt. Nonaccruing loans are those on which the accrual of interest has ceased. Loans are placed on nonaccrual status immediately if, in the opinion of management, collection is doubtful, or when principal or interest is past due 90 days or more and the value of the collateral is insufficient to cover principal and interest. Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed and charged against interest income. In addition, the amortization of net deferred loan fees is suspended when a loan is placed on nonaccrual status. Subsequent cash receipts are applied either to the outstanding principal balance or recorded as interest income, depending on management’s assessment of the ultimate collectability of principal and interest. Past due loans are loans contractually past due 90 days or more as to principal or interest payments but which remain on accrual status because they are considered well secured and in the process of collection.
Nonperforming assets increased $57.4 million between December 31, 2008 and September 30, 2009. As a result, nonperforming assets, as a percentage of total assets, increased from 1.04% at December 31, 2008 to 2.61% at September 30, 2009. The increase was largely attributable to nine residential construction projects totaling $33.5 million and four commercial construction projects totaling $10.9 million. Nonperforming commercial loans increased due to three commercial relationships placed on nonaccrual status and an increase in nonperforming small business loans during the nine months ended September 30, 2009. There was also a $5.0 million increase in properties acquired through foreclosures (REO) due to two residential construction projects now held by us. Other notable increases were in troubled debt restructuring (TDR) and residential mortgages which increased $4.7 million and $3.7 million, respectively.
Total past due loans increased $5.1 million to $6.4 million at September 30, 2009. This increase was mainly due to one owner occupied commercial mortgage we are in the process of modifying. This loan has a partial USDA guarantee and any modification requires their consent and we expect resolution before year-end.
The timely identification of problem loans is a key element in our strategy to manage our loan portfolio. Timely identification enables us to take appropriate action and, accordingly, minimize losses. An asset review system established to monitor the asset quality of our loans and investments in real estate portfolios facilitates the identification of problem assets. In general, this system utilizes guidelines established by federal regulation. However, there can be no assurance that the levels or the categories of problem loans and assets established by the Bank are the same as those which would result from a regulatory examination.
The matching of maturities or repricing periods of interest rate-sensitive assets and liabilities to promote a favorable interest rate spread and mitigate exposure to fluctuations in interest rates is our primary tool for achieving our asset/liability management strategies. Management regularly reviews our interest-rate sensitivity and adjusts the sensitivity within acceptable tolerance ranges established by management. At September 30, 2009, interest-bearing assets exceeded interest-earning liabilities that mature or reprice within one year (interest-sensitive gap) by $35.7 million. Our interest-sensitive assets as a percentage of interest-sensitive liabilities within the one-year window increased from 99.6% at June 30, 2009 to 101.8% at September 30, 2009. Likewise, the one-year interest-sensitive gap as a percentage of total assets changed to 1.0% at September 30, 2009 from (0.24)% at June 30, 2009. The change in sensitivity since June 30, 2009 is the result of the current interest rate environment and our continuing effort to effectively manage interest rate risk.
Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises primarily from interest rate risk inherent in our lending, investing, and funding activities. To that end, management actively monitors and manages its interest rate risk exposure. One measure, required to be performed by OTS-regulated institutions, is the test specified by OTS Thrift Bulletin No. 13a “Management of Interest Rate Risk, Investment Securities and Derivative Activities.” This test measures the impact of an immediate change in interest rates in 100 basis point increments on the net portfolio value ratio. The net portfolio value ratio is defined as the net present value of the estimated cash flows from assets and liabilities as a percentage of net present value of cash flows from total assets (or the net present value of equity). The table below shows the estimated impact of immediate changes in interest rates on our net interest margin and net portfolio value ratio at the specified levels at September 30, 2009 and 2008, calculated in compliance with Thrift Bulletin No. 13a:
COMPARISON OF THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
Results of Operations
We recorded breakeven net income or a loss of $0.10 per common share, due to the effects of preferred stock dividends, for the third quarter of 2009. This compares to net income of $5.5 million ($8.5 million pre-tax) or $0.88 per diluted common share for the same quarter last year. Earnings for the third quarter of 2009 were impacted by an increase in the provision for loan losses to $15.5 million compared to $3.5 million in the third quarter of 2008. This increase was a result of several factors, including risk grade migration due to deterioration in borrower’s financial condition, collateral depreciation and to a lesser extent, growth in the commercial loan portfolio. Noninterest expenses increased $2.5 million mainly due to an increase in FDIC insurance premiums and an increase in costs associated with REO properties. Net interest income for the third quarter of 2009 was $26.3 million, a $3.0 million increase, compared to $23.3 million for the third quarter of 2008.
Net income for the first nine months of 2009 was $625,000. Net loss allocable to common shareholders was a net loss of $1.3 million or a loss of $0.20 per common share due to the effects of preferred stock dividends. This compares to net income of $19.5 million ($29.1 million pre-tax) or $3.09 per diluted common share for the same nine months of 2008. Consistent with the quarterly results, earnings for the first nine months of 2009 were impacted by a $35.1 million provision for loan losses, an increase of $26.8 million over the first nine months of 2008. In addition, noninterest expenses increased $15.8 million over the first nine months of 2009 due to several non-routine items during the second quarter of 2009, as well as increased workout loan costs and franchise growth. Net interest income for the first nine months of 2009 improved by $9.9 million in comparison to the first nine months of 2008.
Stephen A. Fowle
Thank you, Mike, and thank you to everyone participating on the call. Before Mark begins with his opening remarks, I'd like to read our Safe Harbor statements.
Following discussion may contain statements which are not historical facts and are forward-looking statements as 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 securities markets, including changes with respect to the market value of our financial assets, changes in government regulations 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 statements whether written or oral that maybe made from time to time by or on behalf of the Corporation.
I will now turn the discussion over the Mark Turner, WSFS President and Chief Executive Officer.
Mark A. Turner
Thank you, Steve, and thank you all for your time and interest. I have about 10 minutes of comments before opening the lines to take questions.
For the quarter, we recorded a loss of 3.1 million or $0.50 of share. As a result, tangible common book value per share declined by $0.34 or about 1% to $33.19 of share.
Our tangible common equity ratio declined slightly to 5.75% of assets. These ratios do not include the pro forma impact of accounting capital raised discussed later.
Our results were impacted by a number of non-routine items discussed later and by increase credit costs, which are result of a worsened economy across the region and its impact on our customers and our asset quality. We've responded in a number of ways.
First, during the second quarter, we increased our provision for loan losses to 12 million from the first quarter level of 7.7 million reflecting continuing net charge-offs, credit migration in our commercial loan portfolio primarily, the residential, construction and land development portfolio and continued collateral depreciation.
Our allowance for loan losses is now 1.63% of loans, an increase from 1.41% at March very 31st. We also recorded 1.3 million in additional write-downs in REO, predominantly related to an updated appraisal on one Philadelphia Condominium Development project.
All in all, we improved our loss reserves meaningfully in the quarter. Additionally, during the past quarter, we moved two large development projects in the non-performing status. While thee projects are still paying, the projects show very slow absorption. We believe we have taken an appropriately conservative approach to these credit decisions.
We also continue to increase our problem asset management efforts. During the quarter, we hired a Senior Executive with an extensive background in commercial and residential real estate to augment our asset strategies group. His work will focus exclusively on problem loan disposition.
On our earnings call last quarter, we indicated that we anticipate our provision for all of 2009 would be similar to the annualized first quarter results, about $32 million. Precaution that this is a dynamic environment and results could likely be lumpy.
In the second quarter, our provision is tracking greater than our expectation that we came out first quarter. While we believe some of these variances due to lumpiness, we also recognized there has been credit deterioration across our marketplace. As a result, we have updated our full-year loan loss provision forecast.
Our primary assumptions include continued very low housing absorption and very low pricing levels and a continued soft economic environment including higher unemployment. Under these assumptions, we then performed a thorough review of our loan portfolios including, number one, every single residential and commercial construction land development loan, number two, all loans greater than a million dollars rated pass watch or lower in our internal risk rating system, and number three, consumer and various loans based on credit transit portfolio levels.
Based on this analysis, we are forecasting a range for our full-year 2009 provision of 36 to $46 million. We recognized we've underestimated expected provisions in past quarters. This is primarily a result of deteriorating economy across our region. With each passing month, we believe we have a better but not perfect understanding of how the economic is affecting our market and customers and have increased the intensity and granularity of our portfolio valuation to arrive at this lease estimate.
We've also sort the help of outside experts in valuating potential loan losses. Our expected loss range was supported by an independent investment bank review of expected losses in our portfolios in a pessimistic environment that is an environment, where local unemployment is greater than 9%; unemployment is now at 8.4% in Delaware and housing prices declined another 15%. However, we continue to caution that the current environment is still dynamic and losses and reserves may still be lumpy.
Our loss this quarter reflects the difficult economic times in a number of additional ways. Like the rest of the industry, we reported a one-time FDIC Special Assessment to support replacement of the positive insurance bond.
For WSFS, special assessment was 1.7 million pretax or $0.17 per share after-tax. We also recorded 1.8 million in tax equivalent charges or $0.17 per share after-tax related to our decision to conduct an orderly wind-down of 1st Reverse. While we continue to be optimistic about future of the reverse mortgage product, we've been disappointed by the impact of that changing regulatory environment that weakening housing markets have had when origination volumes of 1st reverse.
Over the past few quarters, we've discussed with you the likelihood of a change in strategic direction for the subsidiary. Following the valuation of a number of strategic alternatives for the company we made a decision to wind-down the operations. 1st Reverse will discontinue taking new reverse mortgage applications after July 31 and begin a wind-down at that time that will last a few months.
Additionally, during the quarter, we reported 1.5 million related to fraudulent wire activity affecting accounts of two of our customers impacting earnings per share by $0.15. We also recorded 1 million expenses related to due diligence on an acquisition prospect were we've since terminated the discussions impacting our earnings per share by $0.10. This caused the reflection of WSFS being opportunistic yet careful on the current environment.
Despite the increased credit crisis, we reported this quarter on adjusted for these non-routine items WSFS earnings would have been a positive 1.3 million or $0.09 per share.
While even with adjustments, our earnings are obviously not satisfactory we showed significant gains in building the fundamentals of our core bank so that we can emerge in the current economic climate a much stronger company.
In the past, we've discussed our strategy of Engaged Associates Delivering Stellar Service to Create Customer Advocates, thus building shareholder value. Our success is evident in the significant deposit in commercial loan growth statistics.
Deposits grew to an annualized 29% growth rate this past quarter and commercial loans grew at an annualized adjusted 13% growth rate. At the same time, these deposit rates declined and loan yields increase. As a result, we also grew net interest income by more than 10%, an increase on margin of 26 basis points from the first quarter to second quarter of 2009 to active pricing and balance sheet management decisions.
We're also pleased to report significant fee income growth. Fee income grew 1.6 million or 14% from the first quarter of 2009 and 1.0 million or 9% from the second quarter of 2008.
Our deposit, loan, margin and fee income growth reflect the fundamental strength of our franchise in an adverse economic environment. Of course, we are also managing our expenses more closely and we'll have more to report in coming quarters.
Finally, a couple of items from prior presentations that are worth repeating. Our loan portfolio remains diversified. Our portfolio of residential construction loans where we're experiencing the most of our paying at 5.3% of loans have steady to shrinking. And we continue the main diversification in C&I and CRE lending. And delinquency and losses in our mortgage and consumer portfolios remains very manageable. And we continue to show diminished credit risk in our investment portfolio. We have no Freddie or Fannie preferred, Trust Preferred, sub-prime back securities or bank and thrift equity securities. We continue to actively manage our private label mortgage-backed selling 80 million of securities at a 141,000 gain in the quarter. Due to the quality of our investments, we continue to report no other than temporary impairment on any of our securities.
Another reflection of the quality of our security portfolio, well, 19 of our 81 private label mortgage-backed securities are in the downgrade below AAA minus. To win the trust assets we also conclude that there is no other temporary impairment on any of these bonds as collection of all principle and interest is probable.
Even in the most severe shock scenario the experts provided us, which starts with the March 31, 2009 home price values and includes a 20-plus percent increase in value over the next 24 months, the credit losses on these 19 bonds will only be $231,000 and of $82 million in par value or less than 30 basis points of losses in a severe shock scenario.
Now, for a few comments in our announced common equity raise. Today, we signed an agreement with Peninsula Investment Partners to raise 25 million in common equities through sale of 862,000 shares and a 10-year warrant to purchase 129,000 shares of WSFS' common stock.
The price for the shares and the straight pressure of the warrant of $129 per share. We welcome this capital addition for a number of reasons. First, while we are currently well capitalized the additional capitals for our ability to pursue opportunities, we continue to see opportunity as a result of the economic environment including the prospects of fundamental gains in share in our market and other strategic opportunities. This additional capital provide additional balance sheet strength and support for payment of CPP funds when the time is right.
Additionally, we are enthusiastic about welcoming Peninsula's Managing Partner Ted Weschler back to our Board. Through his funds, Ted, has earned significant amounts of WSFS stock in serving our Board from 1992 to 2007 and was invaluable on building significant shareholder value during that period.
At this pricing, and after Peninsula conducting due diligence, we believe this investments represents a board of confidence in WSFS. Pro forma for this capital raise and dividending a CPP funds to the bank our tangible common book value per share would decrease 1.5% from 33.19 at June 30 to $32.68.
But our tangible common equity asset ratio will increase meaningfully from 5.75% to 6.45%, about a 12% increase. Also, Tier-I and total risk based capital ratios will also increase about 11 to 12% to above already well capitalized levels.
And lastly while we'd benefit from limits and versification requirements we put around our loan portfolios, we nonetheless continue to feel the impact of the economy in our customers and in our credit results. However, shown in our deposit, loan, margin and fee income growth in the second quarter opportunities for our banking business evolved.
We believe from our improvements we are realizing and opportunities we are pursuing we'll outlast the current economic environment.
Thank you for your patience. And at this time we'll take questions.