WSFS Financial's CEO Discusses Q2 2012 Results - Earnings Call Transcript

WSFS Financial Corporation (WSFS)

Q2 2012 Earnings Conference Call

July 27, 2012 13:00 ET


Mark Turner – President and Chief Executive Officer

Steve Fowle – Chief Financial Officer

Rodger Levenson – Chief Commercial Banking Officer

Paul Geraghty – Chief Wealth Officer

Rick Wright – Chief Retail Banking Officer


Michael Sarcone – Sandler O’Neill

Matt Schultheis – Boenning & Scattergood

Catherine Mealor – KBW

David Peppard – Janney Montgomery



Good day, ladies and gentlemen, and welcome to the WSFS Financial Corp. Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Steve Fowle, Chief Financial Officer. You may begin.

Steve Fowle

Thank you, (Mini) and thanks to all of you for taking the time to participate on this call. With me today participating on the call are Mark Turner, President and CEO; Rodger Levenson, Chief Commercial Banking Officer; Paul Geraghty, Chief Wealth Officer; Rick Wright, Chief Retail Banking Officer.

Before Mark begins with his opening remarks, I would like to read our Safe Harbor statement. This report contains estimates, predictions, opinions, projections and other statements that may be interpreted as forward-looking statements as that phrase is defined in the Private Securities Litigation Reform Act of 1995. Such statements include, without limitation, references to our financial goals, management’s plans and objectives for future operations, financial and business trends, business prospects, and our outlook or expectations for earnings revenues, expenses, capital levels, liquidity levels, asset quality or other future financial or business performance strategies or expectations.

Such forward-looking statements are based on various assumptions, some of which may be beyond the company’s control and are subject to risks and uncertainties, which change over time, 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 market interest rates, changes in government regulation affecting financial institutions, including the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the rules being issued in accordance with this statute and potential expenses associated therewith and the cost 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.

Forward statements speak only as of the date they are made, and the company does not undertake to update any forward-looking statement, whether written or oral that maybe made from time-to-time by or on behalf of the company.

With that said, I’ll turn the call over to Mark Turner for his opening comments.

Mark Turner

Thank you, Steve and thanks everyone for your time and attention today. We are pleased to report earnings for the second quarter of $0.76 per share and earnings for the year-to-date of $1.41 per share, which are improvements of 38% and 47% over the same period last year.

As importantly, in the second quarter, we are pleased to have delivered on our “asset strategies plan”, which we announced in early May to significantly reduce balance sheet risk while we also improved earnings and capital. Credit quality metrics across the board were dramatically improved with classified assets down $96 million or 30%, delinquencies down $48 million or 57%, and non-performing assets down $27 million or 30%. When averaged that’s a 39% improvement in these major leading and lagging credit quality indicators. This was all accomplished through a purposeful, robust and aggressive plan, which included bulk sales, individual loan pay-offs, pay-downs, charge-offs and notably also net positive risk rating migration in the loan portfolio this quarter.

The unusual for us, large bulk sale activities resulted in $14.6 million in incremental credit costs, which were taken and accelerated into this quarter. On the problem loan sale side of the plan, we accelerated future potential losses into the quarter and likely took larger losses than needed if we were going to work problem loans out over time. We did this for several reasons. On balance, we believe the time was right. We have been evaluating the problem loan market for continually over the cycle and the market had improved for problem loan sales. We balanced the value we would get now versus the value we might get in the future and the time management distraction and cost to get there. The actions have significantly improved our risk profile and should substantially improve credit cost going forward. And they will also give management even more time and latitude to pursue prudent market share and growth opportunities.

Importantly, the actions during the second quarter were focused on reducing the loans with the highest risk of potential future loss. This includes a 22.5% reduction in construction loans. The remaining small construction loan portfolio consists primarily of recent transactions, which were underwritten to current values and a small portion of order loans, which have been well reserved for with updated collateral information. In addition, our remaining classified assets in our other portfolios have been aggressively identified and marked using updated collateral valuations. I’d also point out that performing loan delinquencies are now a very low $8 million, that’s on a $2.7 billion loan portfolio or only 30 basis points of total loans.

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